Safety stock and reorder point
Safety stock is the buffer held to absorb variation in demand and supplier lead time, and the reorder point is the stock level at which a replenishment order must be placed to avoid running out before it arrives.
The reorder point is average demand during the lead time, plus safety stock. If a product sells 10 units a day and the supplier takes 12 days, you need 120 units just to survive the wait — before allowing for a week where demand doubles or the mill ships late.
Safety stock is where judgement enters. Sizing it is a trade between stockouts and locked-up cash, and the honest input is variability rather than averages: a product with steady demand and a reliable supplier needs very little buffer, while one with either problem needs a lot.
The failure mode worth designing against is the interaction. Lead time and demand rarely move independently — a shortage in the market lengthens supplier lead times at exactly the moment demand spikes — which is why buffers sized on averages fail precisely when they are needed.
Key facts
- Reorder point = (average daily demand × lead time in days) + safety stock.
- Safety stock sizing depends on variability of demand and lead time, not their averages.
- Days of stock = current quantity ÷ average daily consumption.
- High-value slow-moving items usually justify lower buffers than low-value fast movers.
- ABC classification is commonly used to set different service levels by item class.
Who this affects
Any business that buys stock ahead of selling it.
How YarnTally handles it
The planning report computes reorder point, safety stock and a suggested order quantity per SKU from your own sales and receipt history.
See what else it doesReviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.