Questions · Inventory and stock
How much stock should a shop keep?
The answer
Enough of each item to cover sales until the next delivery arrives, plus a small safety buffer, and no more than one order’s worth on top. For each important item, reorder when stock falls to daily sales × supplier lead time + safety stock, and expect it to peak at about safety stock + one order quantity.
There is no single right amount of stock for a shop. The right amount is worked out item by item, from how fast each one sells and how long your supplier takes to deliver. A shop that keeps the right level of each item ends up with the right total.
Stock levels for one item
A worked example
A general store sells 30 packets of a popular biscuit a day. The distributor delivers 2 days after an order. The owner wants 1 day of safety stock and orders a week’s supply at a time.
| Level | Calculation | Packets |
|---|---|---|
| Safety stock | 30 × 1 | 30 |
| Reorder point (order when stock falls to) | 30 × 2 + 30 | 90 |
| Order quantity | 30 × 7 | 210 |
| Highest level, just after a delivery (about) | 30 + 210 | 240 |
So stock of this biscuit should move between about 30 packets (just before a delivery) and 240 (just after), with an order of 210 placed whenever it falls to 90. If it regularly holds 400, cash is tied up for no reason; if it often falls to zero, the reorder point or safety stock is too low. The reorder point calculator works these levels out for any item, and what safety stock is explains how big the buffer should be.
What changes the answer
- Lead time and reliability. Slow or unreliable suppliers need more safety stock.
- Delivery frequency. A distributor who visits twice a week lets you order smaller quantities.
- Shelf life. Perishables should be ordered for fewer days at a time.
- Seasons and festivals. Plan seasonal stock separately and bring levels back down afterwards.
- Cash and space. If the totals are more than you can afford or store, shorten the order cover before cutting safety stock on staples.
- Minimum order sizes. Round to the supplier’s pack or carton.
Checking the whole shop
For a quick overall check, compare total stock at cost with your cost of goods sold to find how many days of sales you hold; inventory turnover explains how. If that figure keeps rising while sales are flat, buying is running ahead of demand, and items that have stopped selling are probably dead stock.
The full method, including review routines and how to clear overstock, is in our guide to preventing stockouts and overstocking.
Related questions
- What is safety stock, and how much should you keep?Safety stock is the extra stock you keep on top of what you expect to sell while waiting for a delivery, so a busy day or a late supplier does not emp…
- What is dead stock, and what should you do with it?Dead stock is stock that has not sold for a long time and is unlikely to sell at its normal price, such as last season’s sizes, discontinued models or…
- What is cost of goods sold (COGS), and how is it calculated?Cost of goods sold (COGS) is what the goods you sold in a period cost you to buy and bring into the shop. Calculate it as opening stock + purchases − …
General information, not legal, tax or financial advice. Published by Chameron Digital.