You should keep enough of each item to cover what you'll use until the next delivery arrives, plus a safety stock for a late delivery or a busy week, and no more. In practice each item moves between two levels: its safety stock, right before a delivery, and its safety stock plus one order, right after. On average you hold the safety stock plus half an order. Work that out item by item and you know both when to reorder and how much cash your shelves should be holding. Below are the formulas, seven items worked through, what they show about money sitting on a shelf, and a free calculator.
The short version
- Safety stock = daily use × the days of cover you want for surprises.
- Reorder point = daily use × (lead time in days + safety days).
- Order quantity = daily use × the days between orders.
- Most on hand = safety stock + one order. Average on hand = safety stock + half an order.
- Order more often and you hold less. Shorter lead times let you hold less too.
- Be tight with expensive, perishable items and relaxed with cheap ones that keep.
- TaroStack works out reorder points from how stock really moves and lists what to order in days of cover. More below.
The formulas
Safety stock = use per day × safety days
Reorder point = use per day × (lead time + safety days)
Order quantity = use per day × days between orders
Most on hand = safety stock + order quantity
Average on hand = safety stock + order quantity ÷ 2
Days of cover = on hand ÷ use per day
The safety days are your judgment: more for an item whose supplier is unreliable or whose use jumps around, fewer for one that arrives like clockwork. The safety stock formula works it out from your own history if you'd rather not guess, and the reorder point example goes through one item slowly.
Seven items, worked through
Windward Roots, the made-up taro business I use in these examples, bakes a batch of taro sweet bread most days and fries and bags chips every week:
| Item | Use a day | Lead time | Safety | Order every | Reorder at | Most | Average | Average value |
|---|---|---|---|---|---|---|---|---|
| Bread flour | 12 kg | 5 days | 2 days | 14 days | 84 kg | 192 kg | 108 kg | $118.80 |
| Butter | 1.44 kg | 5 | 2 | 7 | 10.1 kg | 13.0 kg | 7.9 kg | $69.85 |
| Taro paste | 7.2 kg | 2 | 1 | 3 | 21.6 kg | 28.8 kg | 18 kg | $69.12 |
| Coconut milk | 14 cans | 7 | 3 | 14 | 140 | 238 | 140 | $315.00 |
| Pouches, 5 oz | 100 | 21 | 7 | 30 | 2,800 | 3,700 | 2,200 | $528.00 |
| Front labels | 140 | 10 | 5 | 30 | 2,100 | 4,900 | 2,800 | $154.00 |
| Shipping cartons | 9 | 7 | 3 | 30 | 90 | 297 | 162 | $194.40 |
| Total | $1,449.17 |
That's the answer to the question for this business: about $1,450 of these seven items on the shelves on an average day, never less than the safety stock and never more than the "most" column.
Look at how differently they behave. Taro paste is ordered every three days because it only keeps a week, so even though it's the most-used ingredient, there's never more than 28.8 kg of it. Pouches take three weeks to arrive, so the reorder point is 2,800 pouches, four weeks' use, and ordering has to happen while the shelf still looks full. And the labels are cheap and keep forever, so ordering a month at a time costs little and saves a lot of ordering.
Now compare it with the shelf
On the day of the count, here's what was actually there:
| Item | On hand | Most it should be | Value | |
|---|---|---|---|---|
| Bread flour | 150 kg | 192 kg | $165.00 | OK |
| Butter | 30 kg | 13.0 kg | $264.60 | More than needed |
| Taro paste | 24 kg | 28.8 kg | $92.16 | OK |
| Coconut milk | 300 cans | 238 | $675.00 | More than needed |
| Pouches, 5 oz | 6,000 | 3,700 | $1,440.00 | More than needed |
| Front labels | 5,000 | 4,900 | $275.00 | More than needed |
| Shipping cartons | 250 | 297 | $300.00 | OK |
| Total | $3,211.76 |
$3,211.76 on the shelf against an average that should be $1,449.17: about $1,760 more than the business needs to hold. In days, the shelves hold about 25 days of these items when 11 would do. Nobody did anything silly. The butter was on special, the coconut milk came in a pallet deal, and the pouch supplier's price break was at 6,000. Each was a sensible decision on its own, and together they're $1,760 that isn't in the bank, plus the butter has to be used before it goes off.
Whether a deal is worth it is the same arithmetic every time: the saving against the cash tied up and the risk of it expiring or the design changing. Pouches bought ahead save a few cents each but sit for two months; that's in packaging cost per unit.
Tight on some items, loose on others
Not every item deserves the same attention. A useful split:
| Kind of item | Example | How to treat it |
|---|---|---|
| Expensive or perishable, used a lot | Taro paste, butter | Order often, small safety stock, watch it weekly |
| Long lead time | Printed pouches | Bigger safety stock; the reorder point matters most |
| Cheap, keeps forever | Labels, cartons, tape | Order a month or more at a time; don't spend time on it |
The first row is where the money and the waste are. The last row is where it's fine to be generous.
Get the calculator
Download the stock targets calculator. Put in each item's daily use, lead time, safety days, how often you order, its cost and what's on hand today, and it works out the safety stock, reorder point, order quantity, the range you should hold, the average value, and whether today's shelf says Reorder, OK or More than needed. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Reorder at =use * (lead time + safety days)
Average on hand =use * safety days + use * order every / 2
Today =IF(on hand <= reorder at, "Reorder", IF(on hand > most, "More than needed", "OK"))
Where this stops working
The calculator needs a "use per day" for every item, and that number is the hard part. Use changes with the season, the week's orders and every new product, and it's buried in batch sheets and sales reports nobody adds up. The lead times drift too: the supplier who promised five days has been taking eight since summer. So the targets get worked out once, the numbers go stale, and the shelf goes back to being stocked by feel, which, as the table above shows, usually means too much of the things that were on special and too little of the thing nobody noticed was running out.
How TaroStack does it
TaroStack works the "use per day" out for you, from what your batches and sales actually take, and suggests each item's reorder point from how its stock really moves. The reorder list is in days of cover, so taro paste with two days left and labels with two months left aren't treated alike. Safety stock, minimum and maximum levels are set per item and site. Lead times are checked against how long each supplier's deliveries really take, and offered as a correction when they've drifted.
Stock value is reported by site and by month, so the $1,760 sitting on the shelves is a number you see. And because lots carry their dates, TaroStack forecasts what will expire unsold and what it'll cost, which is how the butter bought on special turns into a plan to use it rather than a write-off.
Stock, counts, reordering and stock value are on every plan, from $49 a month; planning across products is on Standard at $99. The first 30 days are free, and your items and opening stock import from a spreadsheet. If you'd like a hand setting up, ask, and we'll do it with you.