Inventory and stock
Reorder level formula: meaning and worked example
Definition
Reorder level: A reorder level is the stock quantity at which you place a new purchase order, set high enough that the goods arrive before you run out.
Also called: reorder point, ROL, reorder level formula, minimum stock level, reorder quantity
What a reorder level means
A reorder level, also called a reorder point, is a trigger. When the stock of a product falls to that number, you order more. It answers the question of when to order. A second number, the order quantity, answers how much.
A good reorder level covers what you will sell while you wait for the supplier, plus a buffer for bad weeks. Set it too low and you run out before the goods arrive. Set it too high and cash sits in stock that does not move.
Reorder level formula
The standard formula is: reorder level = average daily sales × lead time in days + safety stock.
Lead time is the number of days from placing the order to having the goods on the shelf, including transport and unloading. Safety stock is the extra stock you keep for sales spikes and late deliveries. When you check stock against the level, count only stock you can sell, leaving out expired or damaged goods, and add what is already on order, or you will order the same goods twice.
Setting and reviewing reorder levels
Reorder levels go stale as sales and suppliers change, so treat them as working numbers.
- Work out daily sales from the last 4 to 8 weeks, not from one busy day.
- Use the lead time your supplier actually achieves, not the one they promise.
- Raise levels ahead of festival season, weddings or the school term, and lower them afterwards.
- Set a level for each product and pack size; a fast seller and a slow one need different numbers.
- Review the levels every month, and after any change of supplier.
Worked example
Reorder level for a kirana distributor
A distributor sells an average of 40 packets of a namkeen a day. The supplier takes 5 days to deliver, and the owner keeps 2 days of sales as safety stock, which is 80 packets. Reorder level = 40 × 5 + 80 = 280 packets. With 450 packets on hand, there is no need to order yet. Before Diwali, sales double to 80 a day, so the level becomes 80 × 5 + 160 = 560 packets, and the order goes out at once.
In managemate
Each product or variant in managemate has a Reorder at level and an Order quantity in its stock unit, and a usual supplier. Today's plan flags a product once its usable stock, which leaves out expired lots, falls to the reorder level, and the reorder list shows it while that stock plus anything on draft or open purchase orders is still at or below the level. The suggested quantity is reorder level + order quantity − available − already on order, rounded up; with no order quantity set, the reorder level is used in its place. Select lines and managemate drafts one purchase order per supplier. The list follows the location chosen in the top bar or the whole business, but each product has one reorder level for every location, and managemate does not work out the level from your sales: you set it.
Give your team a clearer working day
Try every feature free for 60 days with up to 5 users. A guided setup brings in your products, contacts and opening stock from Excel.
- No card needed
- Then ₹299 per user a month
- 7-day money-back guarantee