The formula
Reorder point = average daily usage × supplier lead time (in days) + safety stock
The first part covers what you’ll use while you wait for the order to arrive. Safety stock covers the days that go worse than average: a busy week, or a supplier who delivers late.
What you need for each item
- Average daily usage. Take what you used over the last two or three months and divide by the working days. Stock movements in your system, or job cards, give you this.
- Lead time. How many working days from placing the order to having the stock on your shelf, not just the supplier’s quoted delivery time.
- Your worst realistic case. The most you use on a busy day, and the longest the supplier has taken.
Safety stock, simply
A simple, widely used way to set it:
Safety stock = (busiest daily usage × longest lead time) − (average daily usage × average lead time)
It’s the gap between a bad fortnight and a normal one. For items you can’t run out of, such as the plate a big job depends on, lean towards more. For cheap, fast-moving items from a supplier down the road, you can carry less.
A worked example
Say you use M10 stainless bolts, sold in boxes of 100:
- On average you use 1 box a day, and up to 1.5 boxes on a busy day.
- Your supplier usually takes 5 working days, and has taken 6 when running late.
- Usage while you wait: 1 × 5 = 5 boxes.
- Safety stock: (1.5 × 6) − (1 × 5) = 9 − 5 = 4 boxes.
- Reorder point: 5 + 4 = 9 boxes.
So when the shelf drops to 9 boxes, order. How much to order is a separate choice: enough to bring you back up to a sensible level, at least the supplier’s minimum order, and in whole boxes.
Mistakes that cause stock-outs
- Forgetting what’s already on order. If 10 boxes are already coming, you don’t need to order again just because you’re below the reorder point.
- Counts nobody trusts. A reorder point is only as good as the count. Regular stock takes and recording what goes out to each job keep it honest.
- Setting it once and never again. Review reorder points when usage changes, such as a new contract or a quiet season, or when a supplier’s lead time changes.
- Ignoring stock promised to jobs. Stock on the shelf but already allocated to an open job isn’t really available.
Letting the system do the watching
Once each item has a reorder point, nobody should have to walk the racks to find out what’s low. In Fabristack’s Inventory Controller every item reads In stock, Low stock or Out of stock against its reorder point, the low stock report suggests how much to order and from whom, and the stock team gets one email when items hit their reorder point. Items already on a purchase order are flagged, so nobody orders twice.