Avoid stockouts by ordering based on daily demand, lead time and safety stock. This guide offers a practical starting point, not a substitute for specialist advice.
1. Measure normal daily demand
Review a period long enough to include weekends and seasonal variation. Disregard outliers only when you understand their cause.
2. Measure supplier lead time
Count calendar days between placing an order and stock becoming usable. Include quality checking and receiving time.
3. Calculate demand during lead time
If average demand is 12 units a day and delivery takes eight days, you normally need 96 units to cover that wait.
4. Add a safety buffer
Use a reserve that reflects demand spikes and supplier delays. One heuristic is worst-case lead-time demand minus normal lead-time demand.
5. Recalculate regularly
Inventory growth, new channels, supplier issues and promotions may shift the reorder point. Check for cash tied up in overstock too.
Put it into practice
Use the tools below with numbers from your own business, then revise your assumptions against real results. Keep a record of the decisions you make and why.