"Reorder when we get down to ten." Many businesses run on a rule like that, written on a whiteboard or typed into a spreadsheet column called Minimum. It sounds sensible. It also explains a lot of stockouts and a lot of cash sitting on shelves.
Let's look at what that number is trying to do, why one fixed figure often fails, and what a system can do better without turning your purchasing into a statistics course.
What a reorder point really is
When you place an order, the goods do not arrive immediately. The time between ordering and having the goods on your shelf is the lead time. While you wait, you keep selling. So the reorder point is simply the stock level at which you should order so that you do not run out before the delivery arrives.
In plain terms: reorder point = what you expect to sell while you wait + a buffer. That buffer is the safety stock. In the inventory literature, safety stock is the gap between the reorder point and the demand you expect during the lead time. It exists for one reason: the future does not behave exactly as you expected.
The two things that go wrong
Uncertainty comes from two places, and both are normal.
Demand varies. You expect to sell ten a week, but some weeks it is four and some weeks twenty. A promotion, the season, or one large customer can change things quickly.
Lead time varies. The supplier says five days, but sometimes it is four and sometimes twelve. This is easy to overlook, because people tend to remember the promised time, not the real one. Published research on independent-demand systems has examined what happens to the risk of running out of stock when lead time variability is ignored, and finds that it matters.
The more either one fluctuates, the bigger the buffer you need for the same level of protection. And the buffer is not free: it is money tied up in stock, plus storage and the risk of items going out of date.
Why one fixed minimum usually fails
A single "minimum of ten" for every item ignores all of this. Think of two products:
- A fast-moving item with a supplier who is sometimes late. Ten may last you two days, so you stock out before the order arrives.
- A slow-moving item with a reliable supplier. Ten may be several months of sales, so you are carrying far more than you need.
The same number is too low for one and too high for the other. It also goes stale. If sales double in the season or the supplier changes, nobody updates the minimum, because nobody is looking at it. And the number often comes from someone's memory of the last time you ran out, which is a poor basis for a rule.
What a system can calculate and alert
A custom system is not a crystal ball, but it holds the two things you need: how much you actually sold and how long orders actually took. With that, it can do several useful things.
- Measure real lead time per supplier, from the order date to the receiving date, instead of trusting the quoted one.
- Measure real demand per item, including how much it fluctuates, so a steady seller and an erratic one get different treatment.
- Suggest a reorder point per item, based on those two measurements and how much risk of a stockout you are willing to accept. You choose the protection level; the system does the arithmetic.
- Alert before you run out, not after. Instead of a column you have to scan, you get a short list: these items have reached their reorder point, here is the suggested quantity and supplier.
- Account for what is already on order, so it does not tell you to buy again for something that arrives on Thursday.
- Flag items whose behavior changed, for example a sudden jump in sales or a supplier getting slower, so the numbers are reviewed when they stop being right.
You stay in charge. Think of the suggestion as a well-informed starting point that a buyer can accept, adjust or ignore, with a reason.
Where it does not work well
I would be cautious with items that sell rarely and unpredictably, such as a spare part that sells twice a year, or brand new products with no history. Calculations based on past sales have little to work with there, and a human judgment, or a simple "always keep one" rule, is often better. A good system lets you set that for specific items instead of forcing one method on everything.
A practical first step
Pick your ten most important products. For each one, write down what you think the supplier lead time is, then check the last five or six orders and see how long they really took. Next to that, note the best and worst weekly sales. If the real numbers differ from your assumptions, you have just found the reason your minimums do not work, and the starting data a system would need.