Inventory Basics: Reorder Levels, Safety Stock and Dead Stock
Too little stock loses sales and too much stock locks up money. Three simple ideas help you keep the balance.
Stock is money sitting on a shelf. Too little and you lose sales. Too much and your cash is stuck in things that may never sell. You do not need a complicated system to manage this. Three simple ideas cover most of it: reorder levels, safety stock and dead stock.
Reorder level: when to buy again
A reorder level is the quantity at which you place a new order. Set it by thinking about two things: how much of the item you sell in a normal week, and how many days your supplier takes to deliver. If you sell 20 units a week and delivery takes a week, you should reorder when about 20 units are left, not when the shelf is empty.
Safety stock: your cushion
Demand and deliveries are never perfectly predictable. A busy weekend, a late truck or a holiday can disturb the plan. Safety stock is a small extra quantity you keep for exactly that. Keep more of it for items customers will not wait for, such as everyday essentials, and less for things that can be ordered on request.
Dead stock: what is not moving
Every business collects items that stop selling. They take space, collect dust and tie up cash. Once a month, list the items that have not sold in the last two or three months. For each one, decide:
- Can it be bundled with a popular item?
- Can it be discounted to clear it?
- Should it be returned to the supplier if possible?
- Should you simply stop buying it?
Use the 80/20 idea
In most shops a small group of items brings most of the sales. Find your top sellers, keep them always in stock, and watch them closely. Spend less attention on the slow tail.
Count, do not guess
Even with software, count a few items on the shelf each week and compare them with the system. Small differences found early are easy to explain. Large ones found at year end are painful.
What good software should show you
- Current stock for every item and location.
- Items below their reorder level.
- Items that have not sold for a chosen period.
- Purchase history and cost price.
If your system cannot answer these four, it is a record, not a tool.
AmfaTech's FlitBook Pro and FlitPOS help retail businesses keep stock and sales together. If you want advice on setting this up, contact us.