How much stock does your shop need? A practical rule of thumb
· 3 min read
As a rule of thumb, each item needs enough stock to last until the delivery after next, plus a week's buffer. In weeks: lead time plus order interval plus one. An olive oil that sells 6 a week, arrives a week after ordering and gets ordered every two weeks needs at most 4 weeks of stock: 24 bottles. More is cash sitting on a shelf. Less is a stockout waiting to happen.
Think in weeks, not units
"30 mugs left" tells you nothing. At 2 a week that's 15 weeks, at 10 a week it's 3. Weeks of cover (stock divided by average weekly sales over the last 8 to 12 weeks) makes every item comparable, whether it costs €3 or €80.
The rule
Per item you need weekly sales, lead time (the real one, not the catalogue's) and how often you order. Then:
Maximum stock = weekly sales × (lead time + order interval + 1 week buffer). Don't hold more than this after a delivery.
Reorder point = weekly sales × (lead time + 1 week buffer). Below this, you order.
| Item | Sold per week | Lead time | Order interval | Max stock | Reorder point |
|---|---|---|---|---|---|
| Cretan olive oil 500 ml | 6 | 1 week | 2 weeks | 24 | 12 |
| Linen tote, natural | 3 | 2 weeks | 4 weeks | 21 | 9 |
| Ceramic mug, local potter | 2 | 3 weeks | 4 weeks | 16 | 8 |
The oil peaks at 4 weeks of cover, the handmade mug with its long lead time at 8. Both are right. The one-week buffer is deliberately rough: less for very steady sellers, more for items people come in specifically for. What a gap costs there is in Empty shelves: what stockouts really cost you.
If a supplier has a minimum order, work out how long it lasts. 24 jars of spice at one a week is almost half a year. Fine for small, long-lasting goods. For fresh or pricey items, ask for smaller packs.
Seasons: use last year
The rule assumes the next few weeks look like the last few. Not true for gingerbread in November. Going into a season, use the same weeks from last year. Forecasting textbooks call this the seasonal naïve method: the forecast for a week is simply the same week last year (Hyndman & Athanasopoulos). It sounds too simple, but it's the benchmark that fancier forecasts have to beat.
In Advent, gift shops, bookshops and delis often sell several times a normal week, so look at weeks 47 to 51 last year. Easter and Mother's Day are short peaks, and the stock has to be in before them. In summer, a shop in a residential part of Vienna feels the school holidays, while one on Lake Constance or in Tyrol has its best weeks. For back to school, stationers need stock in early, and in Germany term starts anywhere from late July to mid-September depending on the state.
Seasonal lines you buy once get planned from last year: sold 30 mugs, had 10 left? Order 30, not 40. And decide in advance when you'll mark down. For what's still left: Sell it, give it away, write it off.
The whole shop
Divide your stock value at cost by your weekly cost of goods sold. €26,400 of stock against €2,200 a week is 12 weeks on hand, a stock turn of just over 4 a year. Industry benchmarks vary too much to be useful. Compare with yourself a year ago: if weeks on hand rise while sales stay flat, dead stock is piling up somewhere.
Start small
Work out the rule for your 20 best sellers and the 20 items with the most cash tied up. Then at each order, check one thing: below the reorder point? Top up to the maximum. Above it? Don't order, even if the sales rep is standing in your shop.
Sources
- Hyndman, R. J. & Athanasopoulos, G.: Forecasting: Principles and Practice, 3rd edition, chapter 5.2.