Glossary
Reorder point
A reorder point is the stock level that tells you to order more, set so the delivery lands before you run out.
Hit it, place the order. That is the whole rule.
The arithmetic
Weekly sales, times lead time in weeks, plus safety stock.
Sell 20 a week, two-week lead time, 30 units of buffer. Your reorder point is 70. When available stock drops to 70, the order goes out.
Use available rather than on hand, or you will count units that are already promised to somebody. The difference is covered in available inventory.
Review it four times a year
The number is built from two things that both move. Sales change with the season. Lead times stretch when a supplier gets busy.
A reorder point set in January and still running in October is describing a shop that no longer exists.
Where it goes wrong
One reorder point for every line. Fast sellers run out and slow lines pile up, because a rule that ignores how fast something sells is not a rule about stock.
The other fault is a reorder point nobody sees. It sits in a spreadsheet column and the order goes out when somebody notices a gap on the shelf, which is usually a week after the number said so.
Related terms
Safety stock
Safety stock is the extra you hold to cover the weeks when sales run high or a delivery runs late.
Lead time
Lead time is how long it takes for stock to arrive after you place the order, measured from your side of the transaction.
Stockout
Also called: Out of stock
A stockout is running out of something a customer wanted to buy. The lost sale is usually the smallest part of the cost.