Cash and inventory: how much to order and when to reorder

Many brands that profit on paper stumble because money is locked in stock that does not sell, or they run out before the next order arrives.

The reorder point

Reorder point = (lead time + safety stock) × weekly sales. An illustrative example: sales of 40 a week, a lead time of 6 weeks and a safety stock of 2 weeks. Reorder point = (6 + 2) × 40 = 320 pieces. When your stock falls to 320, order the next batch.

Beware of slow stock

• Watch pieces that have not sold for weeks.
• Plan to clear them with honest offers, as in the offers lesson.
• Do not reorder what has not proven itself.

The cash gap

You pay the supplier before you collect from customers. Work out the lowest cash balance you will reach so you do not stall.

Exercise

Open the inventory and cash planner template and work out your reorder point and cash gap for the first six months.