How to set reorder points for a shop

A shop runs out of its best sellers for one reason: the order went out too late. A reorder point fixes that. It is the stock level at which you order more, set so the new stock arrives before the shelf is empty.

The formula

Reorder point = daily sales × (supplier delivery days + safety days)

Say you sell 10 bottles of soybean oil a day, the supplier delivers in 3 days and you keep 2 days of safety stock. The reorder point is 10 × (3 + 2) = 50 bottles. When stock plus what is already on order falls to 50, you order.

How much to order

Order enough to cover a period, usually 2 to 4 weeks for groceries. At 10 a day for 21 days, order 210. Round to the supplier's carton size. If ordering is expensive (a truck, a long trip), use the EOQ calculator.

Mistakes that cause stock-outs

• Using a guess for daily sales. Use the last 90 days of actual sales, and give the last month more weight so a trend shows up.
• Forgetting what is on order. Count stock that is already ordered, or you order twice.
• One number for every item. Fast sellers need high points; slow sellers almost none.
• Never updating. Demand changes with seasons, Ramadan and Eid. Recalculate at least monthly.

Doing it for every item

With 500 items, doing this by hand every week is a full day's work. The free calculator does one item. Ovelit Stock does every item at every location each morning, and drafts the purchase orders for you to check and send.