Reorder points: knowing when to reorder before the shelf goes empty
Every retailer knows the two pains of inventory: the empty shelf that sends a customer to a competitor, and the mountain of overstock tying up cash in the stockroom. The tool that sits between them is the reorder point — the stock level at which you place your next order so new goods arrive before you run out. It isn't complicated math, and you don't need expensive software to use it.
The basic idea
A reorder point answers one question: how low can this item go before I must order more? The answer depends on two things: how fast the item sells, and how long the supplier takes to deliver. If an item sells two units a day and the supplier takes five days, you'll sell roughly ten units while waiting for the order — so the reorder point is ten, and ordering any later means stocking out.
In practice:
- Know the average daily sales of the item. Look at the last four to eight weeks of sales for the item, or for the category if it's a new product with no history yet.
- Know the lead time in days — the realistic delivery time, not the supplier's optimistic quote. If they say three days but usually take five, use five.
- Multiply. Average daily sales × lead time in days = the stock you'll sell while the order is on its way. That's your base reorder point.
- Add a safety buffer. A small cushion for surges and late deliveries — often one to three days' worth of sales. Items with erratic demand or unreliable suppliers need a bigger buffer.
Adjusting for reality
The formula is a starting point, not a contract. Adjust your reorder points when circumstances change:
- Seasonality. A product that sells twice as fast in December needs a December reorder point, not a March one. Review seasonal items before the season starts.
- Promotions and flyers. If you're featuring an item, raise the reorder point ahead of time — nothing is sadder than a promoted product with an empty shelf.
- Supplier reliability. A supplier that slips from five days to twelve needs a bigger buffer until they sort themselves out.
- Minimum order sizes. If the supplier requires a case of twelve and you only need six, the reorder point still tells you when — the case size tells you how much. Don't reorder early just to hit a minimum; that's how stockrooms fill up.
- Perishables. For items with a shelf life, the reorder point must also respect expiry: ordering more than you can sell before the date is worse than running out.
Where to put reorder points into practice
You don't need to calculate reorder points for every SKU on day one. Start where stockouts hurt most — your best sellers and the items customers ask for by name. For most small retailers, the top 20–30 items cover the bulk of lost-sale pain.
A simple spreadsheet works fine: one row per key item, with columns for average weekly sales, lead time in days, safety buffer, and the resulting reorder point. Check it weekly when you review stock. Many basic point-of-sale systems also have reorder-point fields built in — if yours does, use it, and make sure it gets updated when lead times or sales rates change.
Common mistakes
- Set-and-forget. A reorder point based on last year's sales rate quietly goes stale. Review key items quarterly, or sooner if demand visibly changes.
- Using optimistic lead times. Supplier quotes are promises; delivery history is data. Use the data.
- Buffer creep. It's tempting to add "just a bit more" safety stock every time you get nervous. Oversized buffers are invisible overstock — and cash sitting on shelves.
- Ignoring the shelf. The reorder point tells you when to order; it doesn't tell you whether what's in the system is actually on the shelf. Regular shelf checks catch the gap between "in the system" and "where a customer can reach it."
A realistic first step
Pick your ten most important items this week. For each one, write down roughly how many you sell per week and how long restocking takes. Calculate the reorder points, write them on the shelf labels or in your spreadsheet, and commit to ordering at those levels for a month. You'll quickly see which points need tuning — and you'll stop discovering stockouts by accident.