How much stock should a distributor keep? Stock days and reorder level, made simple

Ask a distributor how much stock he has and he will say “about 2,000 cases”. That number tells you almost nothing. 100 cases of a product that sells 50 a day will be gone in two days. 100 cases of a product that sells 2 a day will sit for seven weeks. Both are “100 cases”. Only one of them is a problem, and it is not the one most people worry about.

This guide shows a simple way to decide how much of each product to keep, using numbers you already have. You can do it in a notebook.

Step 1: Find the daily sales of each product

Take the last four weeks of sales for one product and divide by the number of days you actually sold (leave out Sundays or holidays if your vans do not go out).

Example: 480 cases sold in 24 selling days = 20 cases a day.

Use four weeks, not one. One week can be thrown off by a festival, a scheme or a big order from one shop.

Step 2: Know how long a delivery takes

This is the number of days from the day you place an order with the company to the day the goods are in your godown and ready to load. If you order every Monday and the truck comes on Saturday, that is 5 days. If the company only delivers once a week, count the full week.

Step 3: Add a few safety days

Trucks get delayed. A shop suddenly orders double. The company runs short for a week. Safety days are for these surprises. For a steady product with reliable supply, 2 to 3 days is usually enough. For a product the company often runs short of, keep more.

Step 4: Work out the reorder level

The reorder level is the number at which you place the next order. In this example, when the product drops to 160 cases, you order. By the time the new stock arrives 5 days later, you should have about 60 cases left, which is your safety stock.

How much to order? Enough to last until the order after this one. If you order every week, that is about 7 days of sales: 140 cases.

Step 5: Check your stock days every week

Once a week, divide each product’s stock by its daily sales. That gives you stock days.

• Soap, 300 cases, sells 30 a day: 10 days. Fine.
• Biscuits, 40 cases, sells 20 a day: 2 days. Order now, or you will run out before the truck comes.
• New shampoo, 90 cases, sells 2 a day: 45 days. Money is sitting in the godown. Stop ordering and push it, or ask the company to take some back.

The list of products with too many days is just as important as the list that is running out. That is your cash, sitting on a shelf. Our guide on finding stuck stock covers what to do with it.

When the normal numbers do not apply

• Festivals: daily sales jump for a few weeks. Plan the extra stock in advance, then bring it back down. See festival season stock planning.
• The company pushes a target: extra stock you cannot sell is still extra stock. See when the company sends too much.
• Short-life products: milk products, bread and some snacks expire quickly. Never keep more days of stock than you can sell well before the expiry date.
• New products: you have no sales history yet. Start small, check every week, and only build up once it sells.

A 15-minute weekly routine

1. List your top products and their stock today.
2. Divide each by its daily sales to get stock days.
3. Order anything at or below its reorder level.
4. Mark anything over three or four weeks of stock, and stop ordering it.
5. Check short-dated stock and plan to sell it first.

How Mulberry Sales helps

Stock in the godown and on every van is updated as bills are made, and the dashboard shows opening, closing and current stock for each day, so the “stock today” number is already there. Reports break sales down by product for any dates, which gives you the daily sales figure without adding up bills (Growth plan and up). Give a product a low-stock level and it is flagged when it falls below it. Stock that has not sold for a set number of weeks is listed as “not selling”, and if you type an expiry date on the purchase bill you are warned before those goods expire (Business plan). See FMCG distribution software.

Questions people ask