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Running out of stock loses sales. Holding too much ties up cash. A good reorder level helps you buy at the right time.
Key terms
- Lead time: days between placing an order and receiving the goods.
- Average daily usage: how many units you sell or consume per day.
- Safety stock: a buffer for demand spikes or delivery delays.
- Reorder level (reorder point): the stock level at which you place a new order.
The formula
Reorder level = (average daily usage × lead time) + safety stock
Example
- Average daily usage: 20 units
- Lead time: 7 days
- Safety stock: 40 units
Reorder level = (20 × 7) + 40 = 180 units. When stock falls to 180, place the order.
Choosing safety stock
A simple approach is the difference between your maximum and average usage multiplied by your lead time. Use more for items that are critical or have unreliable suppliers.
Review regularly
Usage changes with seasons, promotions and growth. Revisit reorder levels at least every few months.
In Onyx Bills
Set reorder levels and get low-stock and out-of-stock alerts, with stock valuation and movement reports to see what is selling. For Manufacturing Plants, Onyx Inventory flags low stock so purchasing hears about it first. See the inventory management guide.
Frequently asked questions
What is the difference between reorder level and minimum stock?
Minimum stock is the lowest you should ever hold. The reorder level is higher, so new stock arrives before you reach the minimum.
How do I handle seasonal items?
Use different reorder levels in peak and off-peak seasons.
Should every item have a reorder level?
Start with your fast-moving and critical items, then extend.
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