Running out of a fast-selling item costs a sale and sometimes a customer. Holding too much ties up money. A reorder level is the point at which you place a new order, set so that the new stock arrives just before the old runs out.
Most Indian businesses reorder by feel: the owner walks the godown, sees a rack running low and phones the supplier. That works for a shop with 200 items. It fails at 2,000, and it fails whenever the owner is away.
01The three numbers
For each item you need:
- Average daily sales
- how many you sell on a normal day.
- Lead time
- how many days between placing an order and the goods being on your shelf.
- Safety stock
- a cushion for busy days and late deliveries.
The reorder level is:
**Reorder level = (average daily sales × lead time) + safety stock**02A worked example
A Pune electrical shop sells 1.5 mm house wire, 90 metre coils.
- Sales over the last 90 days: 270 coils, so 3 coils a day.
- The distributor delivers in 4 days after the order.
- In a busy week it sells up to 5 coils a day, and deliveries are sometimes 2 days late.
Stock used during the lead time: 3 × 4 = 12 coils.
Safety stock: enough to cover the extra demand and a short delay. A simple approach is to take the busiest daily sales multiplied by the longest lead time, then subtract the normal usage: (5 × 6) - (3 × 4) = 30 - 12 = 18 coils.
Reorder level: 12 + 18 = 30 coils. When stock falls to 30 coils, place the order.
03How much to order
The reorder level says when to order. You also need to decide how much. Common approaches:
- Fixed quantity
- order the same amount each time, such as one carton, one bundle or the supplier's minimum.
- Cover a period
- order enough for a set number of days, such as 30 days of sales. For the wire, 3 × 30 = 90 coils.
- Order up to a maximum
- decide the most you want on the shelf, such as 120 coils, and order the difference.
Check the order against the supplier's pack size, minimum order and any price break. A distributor offering 2 percent extra on 100 coils may be worth taking if you sell 100 coils within the credit period.
04Group items by how they sell
You do not need to calculate every item with the same care.
| Group | Example | How to set levels |
|---|---|---|
| Fast and steady | Cement, wire, common taps | Calculate from sales, review monthly |
| Seasonal | Coolers, raincoats, school stationery | Set a separate level for the season |
| Slow but needed | A rare valve size, a spare part | Keep 1 or 2, reorder on sale |
| Made to order | Custom sizes, special finishes | No stock; order against customer order |
A Coimbatore pump spares dealer keeps 2 of a slow-moving impeller because one sale a quarter brings back a customer for everything else. That is a sensible reason to hold slow stock, as long as it is a decision.
05Lead time is longer than you think
The lead time covers everything from noticing that stock is low to having the goods ready to sell, and the supplier's delivery is only one part of it:
- Noticing the stock is low
- Getting the purchase order approved and sent
- The supplier packing and dispatching
- Transport
- Receiving, checking and putting goods on the shelf
A supplier who promises 3 days often means 3 days after confirming the order. Add a day or two for your own steps. For goods coming from another state by truck, festival seasons and month ends can add a week.
06Seasons and changes
Recalculate reorder levels when the pattern changes:
- Before seasons
- a cooler dealer raises levels in February, and a garment shop before Diwali and the wedding season.
- After a price change
- that moves demand.
- When a supplier changes,
- because the lead time changes.
- When a product is being phased out,
- set the level to zero so you do not reorder it by habit.
07For larger businesses
A distributor with 5,000 item codes and three godowns needs reorder levels by item and by location, reviewed each month from actual sales. Assign each supplier to one buyer, who sees the items below reorder level every morning and raises purchase orders for approval. For manufacturers, reorder levels for raw materials come from the production plan as well as past consumption, and the lead time should include incoming quality checks.
08Signs your levels are wrong
Your reorder levels need adjusting if you see any of these:
- Frequent stock-outs
- on the same items, even though orders are placed on time. The level is too low or the lead time is longer than you assumed.
- Stock that never falls near the reorder level
- before the next delivery. The level or the order quantity is too high.
- Urgent orders
- at higher rates or with express freight. These are the cost of levels set too low.
- Customers asking for items
- you used to stock and stopped reordering by mistake.
Keep a simple note of every stock-out for a month: item, date, and whether a sale was lost. It shows quickly which levels to change first.
09Keep it simple to start
Begin with your top 100 items by sales value. Set a reorder level for each, write it on the bin card or in your system, and check stock against it every morning. Extend the list each month.
In MatruOS, the Home screen shows low stock along with today's sales, and purchase orders can be raised, approved and sent to the supplier from the same place.