Running out of a product costs you sales. Ordering too much of it ties up cash and shelf space. Both problems usually come from the same place: reordering by feel, when someone notices the shelf looks low.
A reorder point replaces that feeling with a number. It needs three settings per product, and two of them are simpler than they sound.
When to order: the reorder point
Order when the stock you have left will last exactly until the delivery arrives, without touching your safety stock. That level is the reorder point:
Take a product you use at 10 units a day, with a safety stock of 200 and a supplier who delivers in 6 days. The reorder point is 200 + 10 × 6 = 260.
When stock falls to 260, you order. Over the 6 days the delivery takes, you use 60 units and reach 200, your safety stock, just as the goods arrive. If the supplier took 10 days instead, the reorder point would be 300: a longer wait means ordering earlier.
How much to order: cover days
The reorder point says when. Cover days say how much: each order should bring in that many days of use.
At 10 a day, 7 cover days means orders of 70, roughly every week. 30 cover days means orders of 300, about once a month. 60 cover days means 600, every two months.
With a 6-day lead time and 30 cover days, the cycle looks like this:
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Stock reaches 260, the reorder point, and you order 300.
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In the 6 days the delivery takes, you use 60 and drop to 200.
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The 300 arrive and you are back at 500.
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About 24 days later you are at 260 again, and the next order goes out.
Cover days change how much you order and how often. They never change when.
Choosing safety stock
Safety stock is your buffer for the things that go wrong: a week of unusually high demand, a supplier who ships late. A common way to set it is in months of average use, for example one month of use for a product with a reliable local supplier and more for one that comes from overseas.
More safety stock makes you order earlier, not more. It raises the reorder point, and each order is still the cover days of use. If you keep running out, raise the safety stock. If stock always sits well above the reorder point when deliveries arrive, lower it.
Choosing cover days
Start from the order rhythm that suits the product: 7 to order every week, 14 every other week, 30 once a month. Then adjust:
| Consider | ↑ Use more cover days if | ↓ Use fewer cover days if |
|---|---|---|
| Supplier minimum order | The minimum is more than a short cover buys | There is no minimum |
| Cost of each order | Shipping or handling per order is high | Delivery is cheap or free |
| Money and space | The item is cheap and small | The item is expensive or bulky |
| Shelf life | The goods keep | The goods spoil |
A minimum order of 500 at 10 a day needs at least 50 cover days, or every order will be rounded up anyway.
Four mistakes to avoid
How StockBold works it out
In StockBold, each product has an expected lead time, cover days (30 unless you change them) and a safety stock. Switch on automatic calculation for a product and StockBold does the rest. It works out average monthly use from stock-outs, components used in assemblies and stock-reducing adjustments, over the months you choose. It sets the safety stock in months of use, or uses your manual figure if that is higher. Then it calculates the reorder point and the date you are expected to reach it.
When a product reaches its reorder point or that date, it appears among your alerts, and a daily email lists it unless you have muted it or switched the email off. On the reorder list, the suggested quantity is enough to bring stock in hand plus stock on approved purchase orders back up to the reorder point plus the cover days of use. Create PO turns the list into a pre-filled purchase order for each supplier. StockBold suggests; a person always creates the order.
Let StockBold calculate reorder points for you
Reorder alerts are included on the free plan.
Read more about reorder and low-stock alerts, or the help guide on setting lead time, safety stock and cover days.