Reorder Points and Safety Stock, Minus the Math Degree
A one-line formula for when to reorder and how much buffer to keep, with worked examples — so you stop running out of bestsellers or drowning in dead stock.
The two most expensive stock diseases are opposites. Disease one: your bestseller runs out, a customer walks in, walks out empty-handed, and buys from your competitor tomorrow. Disease two: the back room is stuffed with “just in case” inventory, and your cash sits frozen on a shelf for months.
Both have the same cure: knowing exactly when to reorder, and how much buffer is actually reasonable. The textbook names are reorder point and safety stock. The math turns out to be multiplication and addition.
The whole formula fits on one line
Reorder point = average daily usage x lead time + safety stock.
Lead time is the gap between placing an order and the goods landing on your shelf. Not what the sales rep promises — what actually happens. If the supplier says three days but it is usually five, use five.
A concrete example. A coffee shop goes through 2 kg of beans a day on average. Their roaster takes 4 days from order to delivery. With no buffer at all, the reorder point is 2 x 4 = 8 kg: the moment bean stock touches 8 kg, the order goes out. Not tomorrow. Not “when someone remembers”.
But reality is lumpier than an average. Some weeks a corporate event orders 30 cups at once. Sometimes the roaster is late because intercity freight got stuck. That is what safety stock is for.
Safety stock without statistics
The textbook version uses standard deviations and service levels. For a small business there is a shortcut that gets you most of the way: plan for the worst plausible case.
Safety stock = (maximum daily usage x maximum lead time) minus (average daily usage x average lead time).
Back to the coffee shop. Their busiest day ever burned 3 kg, and the roaster’s worst delay was 6 days. Safety stock is (3 x 6) minus (2 x 4) = 18 - 8 = 10 kg. Total reorder point: 18 kg.
That may look generous — but note it is for coffee beans, the one item the whole business dies without. For the lychee syrup that sells a few bottles a month, even one spare bottle might be too much buffer. Big cushions are reserved for items whose absence stops the business. Sorting out which items deserve that treatment is exactly what ABC analysis does.
The three numbers you need first
None of this works without:
- Daily sales or usage per item — the average and the peak.
- Real lead time per supplier, measured from PO date to receiving date.
- A running stock figure you can trust.
That last one trips up most stores. If your own stock records drift, the smartest reorder point will fire at the wrong time. Fix accuracy first — starting with hunting down stock discrepancies — then automate the ordering.
Once the data lives in your POS or inventory system, the rest is configuration. In Tenavora, each item takes a reorder threshold per location, and the system flags whatever has crossed it — so “time to order” no longer depends on whoever happens to walk past the stockroom.
Seasons are real; one number per year is not
Average demand for umbrellas in the rainy season and the dry season are two different worlds — same for flour before festive months, or ice during a heat wave. A reorder point is not sacred; revisit it whenever seasons turn, or at least quarterly.
The practical trick: base the calculation on the last 30 days of sales rather than a full-year average. A 30-day window rises on its own as the busy season approaches and falls afterward. While you are at it, note the events that caused spikes — big promos, long weekends — so next year they do not surprise you.
How to tell the setting is wrong
A reorder point set too high shows up as deliveries arriving while the old batch is still half full: capital sleeping, expiry dates creeping closer. Set too low, it shows up as short stockouts before each delivery, or panic top-up orders via same-day courier at painful shipping rates.
Either symptom means reopening the numbers: has daily usage shifted, or has the supplier’s lead time drifted?
Start tonight with your five best sellers. Work out their daily usage, dig the real lead times out of old invoices, set the thresholds. Those five items likely carry most of your revenue — and you will sleep noticeably better knowing your most important products can no longer quietly run dry.