Reorder Stock: The Science Behind Always Having What You Need

🔄 Reorder Stock: The Science Behind Always Having What You Need

“How much stock is enough?” — a question that haunts supply chain managers every day.

Too little, and you risk stockouts, delayed production, and angry customers. Too much, and you lock precious working capital in inventory, risking waste and obsolescence.

Maintaining stock at the optimum level is both an art and a science. Let’s dive into a simple, practical, and scientifically backed approach that you can automate to transform your supply chain.

🎭 The Inventory Balancing Act

Ever noticed this paradox?

• When you order less, consumption increases mysteriously.

• When you order more, consumption slows down.

This isn’t just coincidence—it’s human behavior and process noise at play.

But here’s the twist: supplier response is an external variable.
You order early, they deliver quickly.
You order late, they may delay further.
So, how do you create a system that balances internal predictability with external uncertainty?

The answer: Define your Reorder Level scientifically. And automate it.

📘 First, Understand These Key Supply Chain Terms

1. Lead Time (LT):
   Time between raising a purchase order and receiving material.
   LT = MRN Date – PO Date

2. Consumption:
   Quantity of material issued to production or operations.
   Daily Avg = Sum of Issue Qty over N days / N

3. Reorder Level (ROL):
   Stock level at which you must reorder to prevent running out.

✏️ The Formula: Reorder Level

ROL = (Average Daily Consumption × Average Lead Time) + Buffer Stock

• Use the last 90 days of data for Average Daily Consumption and Average Lead Time.

• Buffer Stock is your safety net — a fixed quantity that absorbs variability.

Once your closing stock falls below ROL, it’s time to place a new order.

🏭 Where Does This Work Best?

• Manufacturing industries — where raw materials must be constantly replenished.

• Retail and wholesale businesses — to avoid stockouts on fast-moving products.

⚙️ How to Automate Reorder Process – A 6-Step Recipe

1. Tag Relevant Items:
   Not all items need reordering logic. Exclude one-time purchase items from automation.

2. Calculate Daily Consumption:
   Run this every day post business hours using issue logs.

3. Compute Average Lead Time:
   Based on past POs and MRN dates.

4. Stock Health Check:
   Closing Stock / Avg Daily Consumption = Available Days
   If Available Days < (Avg Lead Time + Buffer Days) → trigger action.

5. Create Draft PO Automatically:
   Pre-filled with quantities and supplier info.

6. Approve PO the Next Morning:
   Quick approval saves you from last-minute firefighting.

✅ Things to Keep in Mind Before Automating

• ⚠️ Supplier Capacity: Don’t overload a single supplier; it increases their lead time.

• ⏱️ Prefer Short Lead Time Vendors: Helps reduce buffer stock and cost.

• 🌍 External Factors: Market disruptions, transport delays, or policy changes must be monitored regularly.

💡 Final Thoughts

Optimizing stock is not just about controlling cost—it’s about building resilience and reliability into your operations. With a simple formula and a 6-step process, you can turn chaos into consistency.

And yes, it’s absolutely possible to drive your optimum level of stock—and maintain it forever.