How to set reorder levels for fast-moving items in a retail shop

Running out of a popular item loses sales and sends customers to the shop next door. Ordering too much ties up cash and shelf space, and for items with a shelf life, leads to waste. Reorder levels help you find the balance: they tell you exactly when to order, before you run out.

This guide explains the simple formulas, with a worked example you can apply to your own items.

The key terms

• Average daily sales: how many units of an item you sell on a typical day.
• Lead time: the number of days between placing an order and the goods arriving on your shelf.
• Safety stock: a small extra amount kept to cover unexpected demand or late deliveries.
• Reorder level: the stock level at which you place a new order.

The formulas

Reorder level = (Average daily sales × Lead time in days) + Safety stock

A simple way to set safety stock is:

Safety stock = (Maximum daily sales × Maximum lead time) − (Average daily sales × Average lead time)

This covers the case where sales are high and the supplier is late at the same time.

Worked example

Take a 1-litre sunflower oil pouch in a neighbourhood supermarket. Looking at the last 30 days of sales:

Safety stock = (14 × 5) − (8 × 3) = 70 − 24 = 46 units

Reorder level = (8 × 3) + 46 = 24 + 46 = 70 units

So when stock of this item falls to 70 units, it's time to order.

How much to order

The reorder level tells you when to order; you also need to decide how much. A simple approach is to order enough to cover a set period, for example two weeks of sales:

Order quantity = Average daily sales × Days of cover

For the oil example: 8 × 14 = 112 units, rounded to the supplier's case size. If the supplier gives better prices for larger quantities, or delivers only weekly, adjust the days of cover accordingly.

Tips for getting it right

Use real sales data, not memory

Reorder levels are only as good as the sales figures behind them. Use at least 30 days of actual sales from your billing system, and longer for slow-moving items.

Treat fast and slow movers differently

Fast-moving items need reorder levels reviewed often, because small changes in demand have a big effect. For slow movers, keep stock low and accept that you may occasionally run out.

Watch seasons and festivals

Demand changes around festivals, weddings, school reopening and seasons. Raise reorder levels ahead of known peaks, and lower them afterwards, so you don't end up with excess stock.

Account for shelf life

For items that expire, the order quantity should never be more than you can sell before expiry. Short-life items need smaller, more frequent orders.

Review regularly

Review reorder levels for your top-selling items every month, and for the rest every quarter. New items need a review after their first few weeks of sales.

Keeping it manageable

Calculating reorder levels for hundreds of items by hand is not practical. Start with your top 50 items by sales value, which usually account for a large share of revenue. Once those are right, extend to the rest.

Where POS Code fits

In POS Code, every sale and purchase updates stock immediately. You can set a minimum level for each item, and POS Code produces a reorder list of items at or below their level, with sales history to help you decide quantities. Purchase orders can be raised directly from the list. Regular stock audits keep the stock figures behind these calculations accurate.

To see reorder alerts working on items like yours, book a free demo.