Two mistakes cost traders money every month: running out of a best-seller and over-buying a slow item. Both come from the same habit, ordering by feeling. A reorder level replaces the feeling with arithmetic that you can adjust. The method below uses numbers you already have: how fast an item sells, how long the supplier takes and how much that time varies.
The basic formula
Reorder point = average daily sales x lead time in days + safety stock. Lead time is the number of days from placing the order to having the goods on the shelf and ready to sell, including shipping, customs clearance and receiving.
Example: an item sells 12 units a day. Imports from the supplier take 35 days from order to shelf. Lead-time demand is 12 x 35 = 420 units. If you want a buffer of 10 days of sales, safety stock is 120 units, so the reorder point is 540. When stock on hand plus open orders falls to 540, order again.
Safety stock: protect against variation
A simple way is to take the longest delay you have seen recently, minus the usual lead time, and multiply by daily sales. If a shipment once arrived 12 days late, safety for that supplier is 12 x 12 = 144 units. A more statistical method uses the spread of daily sales and lead times, but the simple method is a good start and is easy to explain to buyers.
Classify items before you set levels
| Class | Share of sales | Policy |
|---|---|---|
| A | Top items by value, roughly 70 to 80 percent of sales | Tight levels, weekly review, strong safety stock |
| B | Middle items | Monthly review with standard levels |
| C | Long tail of small sellers | Order in larger, less frequent batches or stock only against orders |
Seasons in the UAE market
Demand swings with the calendar: Ramadan and Eid for food, gifts, clothing and electronics; Dubai Shopping Festival and summer promotions for retail; back-to-school for stationery and uniforms; cooler months for outdoor and construction supplies. Use last year's sales for the same weeks, not the yearly average, and place orders early enough to cover longer lead times when ports are busy. A calendar view is explained in the Ramadan and Eid business calendar.
Cash and shelf-life limits
- Cap the total value of stock for each class, so safety stock does not consume your working capital.
- For perishable goods, ensure the quantity cannot exceed what can be sold before expiry; see batch and expiry control.
- Review slow items and plan clearance before they age; the cost of old stock is shown in inventory valuation.
Let the system calculate it
An inventory system records sales speed and lead times and recalculates levels automatically, suggests purchase quantities, groups them by supplier and warns about shortages before they happen. See inventory and warehouse software and ERP for trading companies. Send us your item list and we will test the levels on your history.