The reorder point, and the two numbers it needs
Most reorder points are a level someone felt comfortable with. The calculation is not difficult and produces a different answer.
A reorder point answers one question: at what stock level should the next order be placed so that stock does not run out before it arrives?
Small time estimates can drift when rounded casually. For a payroll example of formal rounding rules, see this article.
That depends on two things — how fast the item sells and how long the supplier takes — and most reorder points in small businesses reflect neither.
Demand during lead time
The base calculation is average demand per day multiplied by lead time in days. An item selling four a day with a two-week lead time needs a reorder point of at least fifty-six.
Set below that, the item will stock out every time regardless of how promptly the order is placed. This is the single most common cause of stockouts in small businesses, and it is arithmetic rather than bad luck.
Not the supplier's quoted despatch time. Include your own ordering delay, transit, and the time between delivery and the goods actually being available to sell.
For broader small-business operating guidance, the U.S. Small Business Administration publishes public resources on managing day-to-day business processes.
Then add for variability
Average demand and average lead time produce a reorder point that is right about half the time, which means stocking out on roughly half of cycles.
Safety stock covers the difference between average and bad. How much depends on how variable each is, and — importantly — on what a stockout actually costs. Items where running out means losing a sale need less cover than items where running out stops production.
Supplier reliability is the bigger variable
Demand variability is usually modest and predictable. Supplier lead time variability is frequently large and is the thing that actually causes stockouts.
A supplier quoting ten days and delivering anywhere between eight and twenty-five requires far more safety stock than one reliably delivering in fifteen. Recording actual lead times per supplier, per order, is a small habit with a direct effect on how much stock you have to carry.
Review them on a schedule
Demand changes, suppliers change, seasons change. A reorder point set two years ago is describing a business that no longer exists.
Twice a year, for the lines that matter, recalculate from the last twelve months of actual movement. For the long tail, an annual pass is enough. The review itself is a couple of hours and it is worth knowing what it costs — recorded against a task with a spreadsheet or a task timer , it is a small figure set against the stockouts it prevents, which makes it easier to protect in a busy quarter.
Watch what the system is telling you
Repeated stockouts on an item mean the reorder point is too low or the lead time assumption is wrong. Repeated deliveries arriving while stock is still high mean the opposite.
Both are visible from the movement history and neither is visible from the shelf, which is why reorder points set by looking at the shelf are usually wrong in one direction or the other.