Selling out feels like success, but mostly it's missed revenue. A customer who can't order often buys from a competitor. At the same time, you don't want too much stock: it costs money, takes up space and sometimes becomes obsolete. The solution isn't gut feeling, but a few simple calculations per product.
Three terms you need to know
- Lead time: the time between your order with the supplier and the moment the stock is booked into your warehouse. Count transport and receipt too, not just production time.
- Safety stock: a buffer for when you sell more than expected or your supplier is late.
- Reorder point: the stock level at which you need to reorder so you don't run out.
How to calculate your reorder point
The basic formula is simple: reorder point = average sales per day × lead time in days + safety stock.
How much safety stock do you need?
That depends on two things: how much your sales fluctuate and how reliable your supplier is. A simple rule of thumb: take the difference between your busiest and your average sales per day, and multiply it by your lead time. With stable sales and a reliable supplier, a small buffer is enough. With a supplier who is often a week late, add that week.
Not every product deserves the same attention
Group your products by importance, the so-called ABC analysis. A products are the small group that makes up most of your revenue: follow those up weekly, with a generous safety stock. C products sell little: a low stock or even ordering on demand is often enough there. The same applies to spare parts. Why that matters so much is explained in why technicians wait for parts.
Take seasons and promotions into account
An average over the whole year doesn't work for products that mainly sell in summer or around the holidays. Adjust your expected sales per day per period, and order extra for promotions and campaigns. For the holiday season, read more in preparing for Black Friday and the holidays.
One stock, all channels
If you sell through your webshop, marketplaces and retailers, your reorder point has to account for sales across all channels combined. That only works if your stock is in one place and visible live. How to approach that is explained in webshop and retail from one stock.
At Sendwit you see your stock per item live in your portal, so you always know when it's time to reorder. Curious how it works? Get in touch.