Never stock out or overstock again. Calculate the reorder point — the stock level that should trigger your next purchase order — from daily demand, supplier lead time, and a safety buffer.
The reorder point is the stock level that should trigger your next purchase order. Set it right and you never stock out; set it too high and cash sits idle in the godown. The formula is average daily demand × lead time + safety stock.
Lead time is how long your supplier takes to deliver after you order; safety stock is the buffer that absorbs demand spikes and late deliveries. For fast-moving FMCG lines, getting the reorder point right is the difference between a full shelf and a lost sale.
A line selling 120 units/day, a 5-day supplier lead time, and 200 units of safety stock: reorder point = 120 × 5 + 200 = 800 units. When stock hits 800, raise the PO.
Enough to cover the worst realistic combination of a demand spike and a supplier delay. Fast movers and unreliable suppliers need more; stable lines need less. Start with a few days of average demand and tune from experience.
Use your longest realistic lead time, or build the variability into safety stock. Reordering on the average lead time alone leaves you exposed every time the supplier runs late.
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