A reorder point is not a minimum stock level
The most common inventory mistake we see is treating a fixed minimum as if it were a reorder point. They answer different questions, and only one of them accounts for how long your supplier takes.
Almost every store we look at has a minimum stock level set somewhere. Usually a round number — 10, 20, 50 — chosen once, by someone who has since left, and never revisited.
A minimum stock level answers: how low am I comfortable going?
A reorder point answers: at what level must I order so that stock arrives before I run out?
Those are not the same question, and the gap between them is where stockouts live.
The thing a minimum cannot know
Consider two products that both sell 5 units a day.
- Product A comes from a supplier three days away.
- Product B comes from a supplier six weeks away.
Set both to a minimum of 20 units and Product A is fine — you will order at 20, sell 15 while you wait, and take delivery with 5 to spare. Product B is a disaster: you will order at 20, sell 210 units’ worth of demand over the six weeks, and be out of stock for a month and a half.
The minimum did not fail because the number was wrong. It failed because a single number cannot encode lead time, and lead time is the variable that matters most.
What a reorder point actually contains
reorder point = demand rate × lead time + safety stockThe first term is what you expect to sell while waiting for the delivery. For Product B that is 5 × 42 = 210 units. Your reorder point is at least 210, whatever your comfort level says.
The second term is the buffer for being wrong. It is not a fixed percentage — it scales with how variable that product’s demand actually is. Two products selling the same average can need very different buffers:
- A steady seller doing 5 a day, every day, needs almost nothing.
- An erratic one averaging 5 a day but ranging from 0 to 30 needs a lot.
A fixed minimum treats those identically. That is why it is simultaneously too high for your steady products — tying up capital you did not need to spend — and too low for your erratic ones.
Why this gets worse as you grow
With 30 products, someone holds all of this in their head and the fixed minimums are quietly overridden by judgement. With 300, nobody does. The minimums stop being a starting point and become the whole policy, and you start absorbing stockouts as a cost of doing business rather than as something with a cause.
The failure is invisible in the numbers you look at. Revenue does not have a line for the order that was never placed because the product was out of stock.
What to do about it
You do not need software to fix this. You need three numbers per product: the demand rate, the lead time, and some measure of how variable demand is. If you have those in a spreadsheet, the formula above will already put you far ahead of a fixed minimum.
What software buys you is not the formula — it is keeping all three numbers current across a catalogue where they change every week, and noticing when the lead time your supplier promised has quietly diverged from the one they actually deliver.
That second one is worth more than it sounds. In most stores we look at, the configured lead time and the observed lead time differ by enough to explain most of the stockouts on their own.
SimplifyStock calculates reorder points per product from your own order history. See how it works.