Dynamo. The business engine.
Running out loses the sale and the customer; overbuying ties up cash on the shelf. A reorder point for each item tells you when to buy, and a small safety stock covers the days that do not go to plan.
DynamoOS team6 min read
A reorder point is the stock level at which you place a new order for an item. It is set so that the stock still on the shelf covers the sales you expect while the supplier delivers, plus a small buffer. When stock falls to that level, you order; when the delivery arrives, you are close to the buffer but not below it.
Without a reorder point, buying depends on someone noticing an empty shelf, which is usually too late, or on habit, which often means buying the same quantity whatever the sales were. A number per item turns buying into a routine anyone in the team can follow.
You need two figures for each item and one decision. The figures are the average quantity you sell per day and the supplier's lead time, the days from placing an order to having the goods on the shelf. The decision is how much safety stock you want for days that are busier or deliveries that are slower than usual.
Use sales of normal weeks for the average. A week with a one-off promotion or a stock-out distorts it in either direction.
A simple, widely used method is to take the most you have sold in one day times the longest lead time you have seen, and subtract the average daily sales times the average lead time. The difference covers a bad combination of a busy spell and a slow delivery, without keeping months of extra stock.
| Figure | Example item |
|---|---|
| Average daily sales | 20 units |
| Highest daily sales | 30 units |
| Average lead time | 5 days |
| Longest lead time | 8 days |
| Safety stock | 30 × 8 − 20 × 5 = 140 units |
| Reorder point | 20 × 5 + 140 = 240 units |
If that safety stock looks large, look at what drives it. Here the longest lead time does most of the work: agreeing a firmer delivery time with the supplier, or finding a second one, cuts the buffer more than any calculation.
Start with your best-selling items, because they matter most and have the most reliable figures. For each one, work out average sales and lead time, add a safety stock, set the reorder point and decide the order quantity. Then put the levels in your system so the reminder comes to you instead of you going to the shelf.
The reorder point says when; the order quantity says how much. A practical rule for a shop is to order enough for a few weeks of sales, within the supplier's minimum order and the space you have. Ordering more often in smaller lots keeps less cash on the shelf but costs more effort and delivery charges.
Balance three things: the price breaks the supplier offers, the cash the order ties up, and how long the item keeps. Perishable and fashion items deserve smaller, more frequent orders; slow, durable items can be bought in larger lots.
Demand is not flat through the year. Before a known peak, such as the weeks before Ramadan and the Eid holidays or the start of the school year, raise the average daily sales you use and place orders earlier, because suppliers are busy at the same time. Bring the levels back down once the peak has passed.
Imported stock has longer and less predictable lead times, so it needs a larger safety stock. Remember the cash side too: VAT on imported goods is generally paid at customs when the goods are released, and deducted in the VAT return for the period of the import, unless ZATCA has approved paying it through the return.
Review the levels of your top items every month and the rest every quarter, and at once when something changes: a new supplier, a price change, a promotion, a move between branches. Two warning signs tell you a level is wrong: frequent stock-outs mean it is too low, and stock that sits for months means it is too high.
In Dynamo Inventory you set a minimum level for each item, and a purchase request is raised when stock falls below it. Dynamo Purchasing gathers requests into orders, keeps each supplier's terms and history, and receives goods against the order, so the lead times you rely on come from your own records.
Items you always want on the shelf should. For items you only buy to order, or one-off stock, a reorder point adds little.
Use the longest lead time you have seen in the safety stock, and talk to the supplier: a firmer delivery time lowers the stock you need to hold.
Set levels per branch or warehouse, because each sells at its own pace. Transfers between branches can cover a gap before a new order arrives.
The rules in this article come from these official sources, read on the day it was published.
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