A reorder point tells you when to place the next order for an item. For a wholesaler it is easiest to work in months of cover: how many months your current stock will last at the normal sales rate.
The formula
cover (months) = available stock ÷ average monthly sales
order when cover < reorder point
Lead time is the time from placing the order to having the goods on your shelf, including production, freight and customs. Safety stock covers the months when sales run higher than average or the ship is late.
A worked example
A building set sells an average of 120 pieces a month. The supplier ships by sea, and the order takes 2 months to arrive. You keep half a month of safety stock.
| Average monthly sales | 120 |
| Lead time | 2.0 mo |
| Safety stock | 0.5 mo |
| Reorder point | 2.5 mo = 300 pcs |
| Available stock today | 210 |
| Cover today | 1.75 mo |
Cover is 1.75 months, below the reorder point of 2.5, so the item needs ordering now.
How much to order
Pick how many months of stock you want after the order. This is your cover target. With a target of 5 months, you want 600 pieces. You have 210, so you order the gap.
order = 5 × 120 − 210 − 0 = 390
The supplier packs 24 per carton. 390 ÷ 24 is 16.25 cartons, so you round up to 17 cartons, or 408 pieces. If rounding adds more than a few percent, check whether one carton fewer is acceptable.
How urgent is it?
POplanner marks a line urgent when cover falls below 0.6 times the reorder point, which is 1.5 months in this example. It marks overstock at three times the reorder point or more, which is 7.5 months.
Three mistakes that cause over-ordering
1. Taking customer orders off twice
Many ERPs report an available figure that is already physical stock minus open customer orders. If your sheet subtracts customer orders again, every item looks lower than it is and you buy too much. Check what your ERP's available column means before you build on it.
2. Letting one big order set the average
A customer who buys 600 pieces once in March lifts the twelve-month average by 50 a month. Leave the spike month out, or replace it with a normal month, and decide separately whether that customer will order again.
3. Treating a stock-out as low demand
If the item was out of stock in February, February's sales are zero because nothing could ship. Counting that zero drags the average down, so you under-order and run out again. Skip months where stock was empty.
Seasonal items need a different rule
A Christmas item sells for a few weeks and then stops. An average over twelve months tells you little. Plan it from last season's sales and from an order-by date that works back from the event. The Christmas order-by guide shows the dates.