Never run out of your best sellers

Every shop has a handful of products that do most of the work. For a phone accessories seller it might be chargers and screen protectors. For a chop bar it is rice, oil and gas. When one of them runs out, the customer does not wait. They walk to the next shop, and some of them do not come back.

The fix is not to buy huge amounts of everything. That ties up cash and fills your store room. The fix is to know, for each best seller, the exact stock level at which you must place your next order. That number is called the reorder level, and you can work it out with simple maths.

Find your best sellers first

You do not need a reorder level for every item. Start with the products that sell fastest or bring in the most profit. Look at the last four weeks of sales and list your top ten by quantity sold.

These are the items where running out costs you most. Slow sellers can be reordered by eye. Best sellers deserve a number.

The three numbers you need

1. Sales rate

How many you sell on an average day. Take the quantity sold over a recent period and divide by the number of days. If you sold 168 chargers in the last 28 days, your sales rate is 168 ÷ 28 = 6 a day.

Use a period that reflects normal trading. Four weeks is a good start. If December or back-to-school season is coming, look at the same period last year as well, because your normal rate will not hold.

2. Lead time

How many days pass between placing an order and having the stock on your shelf, ready to sell. Not the days the supplier promises, the days it really takes. If your supplier in Accra usually delivers to your Kumasi shop five days after you call, your lead time is 5 days. If it is sometimes 4 and sometimes 7, use the usual figure here and let the safety stock cover the bad weeks.

3. Safety stock

A small buffer for surprises: a busy week, a late delivery, a supplier who is out of stock. A practical way to set it is in days of sales. Two or three days of sales is common for items with a reliable supplier. Use more days if deliveries are often late or demand jumps around.

The reorder level formula

Put the three numbers together like this:

Reorder level = (sales rate × lead time) + safety stock

The first part is how much you will sell while you wait for the new stock to arrive. The safety stock is what is left on the shelf if things go to plan, and your cushion if they do not. When your stock falls to the reorder level, you order. Not later, not "when it gets low", but at that number.

A worked example

Here is how it looks for a phone accessories shop. Sales are from the last 28 days. Safety stock is set in days of sales, then turned into units.

Read the first row: the shop sells 6 chargers a day and waits 5 days for new stock, so it will sell 30 while waiting. Add 18 for safety and the reorder level is 48. When the charger count drops to 48, it is time to call the supplier.

Notice the power bank. It sells slowly, but the supplier takes a week and is not always reliable, so the safety buffer is four days. Slow sellers with long lead times still need planning.

How much to order each time

The reorder level tells you when to order. You also need to decide how much. A simple approach is to order enough to cover the days until your next planned order, plus refill the safety stock you have used.

Say you order chargers every two weeks. That is 14 days × 6 a day = 84 chargers. If the stock on the day you order is exactly 48, and 30 sell during the 5-day wait, you will have 18 left when the delivery arrives. Add 84 and you are back up to 102, which carries you through the next cycle.

Think about cash too. Ordering every week in smaller amounts keeps less money sitting on shelves, but costs more in transport and your time. Ordering monthly may get you a better price but locks up cash you may need elsewhere. If cash is often tight even when sales are good, our article Profitable but always short of cash? Here is why explains what is going on.

Review and adjust

Your sales rate is not fixed. Prices change, a new competitor opens, a product goes out of fashion. Review your reorder levels every month or two for your top items, and straight away when:

• You run out even though you ordered on time. Your safety stock is too low or your lead time has grown.
• You always have lots left when the delivery arrives. Your reorder level is too high and cash is sitting idle.
• A season is coming. Raise the levels before the rush, not during it.
• You change supplier. A new supplier means a new lead time.

Let your records do the watching

The hardest part is noticing in time that stock has hit the reorder level, especially on a busy day. If you track stock in Snnel, you can set a low-stock alert level on each product, and the app tells you when it is reached. For shops with more than one branch, stock is tracked per branch, so you can see which location needs topping up. Use the reorder level you worked out above as the alert level and you will hear about it before the shelf is empty.