How to avoid overstocking and stockouts comes down to two numbers per product. A reorder point tells you when to buy, and an order-up-to level tells you how much. Both come from daily sales, delivery time and how often you order, worked here for one product in UGX.
Overstocking or stockouts: which one do you have?
A shop can have both at once, in different products. Run three checks on last month before you change how you buy.
- Stockouts: list the products that hit zero, and count the days each was out. A best seller missing for 4 days a month is the expensive kind (stockout cost shows how to price it).
- Overstock: list the products with no sale in 90 days, and add up their value at cost. That is dead stock: cash on a shelf.
- Both: if both lists are long, treat them as one problem. The cash in the second list should be buying the first.
The two problems share causes. Buying by feel, one reorder level for every product, and unrecorded losses cause both. Unrecorded losses are the sneaky one: the record says you hold stock that is gone, so nobody reorders until the shelf is empty.
How do you set a reorder point?
The reorder point is the stock level at which you order, so the delivery lands before you run out. It is the stock you sell while waiting for the delivery, plus a safety buffer.
Reorder point = average daily sales × lead time in days + safety stock
The USAID Logistics Handbook uses the same rule for clinics on unreliable roads, where it calls the reorder point the "min". Its advice for lead time: "When in doubt, assume your lead time is longer."
For example, a shop in Gulu sells 1-litre bottles of cooking oil, 12 bottles a day on average. The supplier in Kampala usually delivers in 3 days.
A carton holds 12 bottles, and each bottle costs the shop UGX 7,000. These are example figures, not a real shop's.
Stock sold while waiting: 12 × 3 = 36 bottles. The safety stock, worked out below, is 42 bottles. The reorder point is 36 + 42 = 78 bottles.
What is a reorder point covers the formula on its own. The rest of this page is what the formula leaves out.
How much safety stock does a small shop need?
Enough to cover a late delivery or a busy week, and no more. There are three common ways to size it, and on the same product they give three different answers.
| Method | Formula | Result | Use it when |
|---|---|---|---|
| Half the order cycle | ½ × days between orders × average daily sales | ½ × 7 × 12 = 42 bottles | You are starting, or have little sales history |
| Worst case | busiest day × longest lead time − average day × normal lead time | 20 × 7 − 12 × 3 = 104 bottles | Running out is not an option and the road fails in the rains |
| Statistical | 1.65 × standard deviation of daily sales × √lead time | 1.65 × 4 × √3 = 11.4, so 12 bottles | You have months of daily sales and an on-time supplier |
The first method is the Logistics Handbook's guideline: safety stock of at least half the review period. Here the shop orders weekly, so half is 3.5 days of sales.
In the statistical row, 4 bottles is the example's standard deviation of daily sales. The factor 1.65 aims to cover demand in 95% of order cycles.
The statistical method gives the smallest buffer because it only covers swings in daily sales. It assumes the lorry arrives on day 3. For a Gulu shop whose delivery can take 7 days in the rains, it protects against the wrong risk.
Use the worst case for the handful of products you can't be without. Use half the order cycle for everything else. Lower the buffer once your records show how sales and deliveries really vary.
How much should you order?
Order up to a maximum, not a fixed quantity. The maximum is the reorder point plus the sales between two orders.
Order-up-to level = reorder point + average daily sales × days between orders
For the cooking oil: 78 + 12 × 7 = 162 bottles. When the stock falls to 75, the order is 162 − 75 = 87 bottles.
Then apply two limits the formula ignores:
- Round to whole cartons. 87 bottles is 7.25 cartons. Round up for a fast seller like this one: 8 cartons, 96 bottles, UGX 672,000. Round down for slow sellers and anything that expires.
- Cap by cash. If only UGX 500,000 is free for oil this week, buy 5 cartons for UGX 420,000. Stock reaches 135 bottles, and you will be back at the reorder point in under 5 days.
When cash is short across the whole order, cut slow sellers first. Never cut the products that run out fastest. Economic order quantity adds ordering and holding costs, which matters once delivery charges are significant.
A reorder table you can copy into a spreadsheet
Put one product per row and let the formulas do the work. The three rows are examples; replace them with your products.
| A Product | B Daily sales | C Lead time (days) | D Safety (days) | E Days between orders | F Pack size | G Stock now | H Reorder point | I Order up to | J Order (packs) |
|---|---|---|---|---|---|---|---|---|---|
| Cooking oil 1 L | 12 | 3 | 3.5 | 7 | 12 | 75 | 78 | 162 | 8 |
| Sugar 1 kg | 25 | 2 | 3.5 | 7 | 20 | 160 | 138 | 313 | 0 |
| Exercise books | 30 | 5 | 7 | 14 | 100 | 200 | 360 | 780 | 6 |
The formulas for row 2, to copy down:
- D2: =E2/2 (half the order cycle)
- H2: =ROUNDUP(B2*(C2+D2),0)
- I2: =H2+B2*E2
- J2: =IF(G2<=H2,ROUNDUP((I2-G2)/F2,0),0)
The formulas work the same in Excel and Google Sheets. Sugar shows no order yet: 160 bags is above its reorder point of 138.
When should you break the rule on purpose?
When you know demand or delivery will change, raise the two numbers for those weeks and lower them after. Four cases are common.
The rainy season
Use the longest lead time you have seen, as the Logistics Handbook advises where rains close roads. For the oil, a 7-day lead time lifts the reorder point from 78 to 12 × 7 + 42 = 126 bottles.
School terms
Exercise books, uniforms and lunchbox items sell in a rush before each term. Build stock two to three weeks before the opening date.
In 2026, Uganda's third term opened on 14 September (Daily Monitor). Kenya's Term I opened on 5 January (The Star).
A supplier price rise
Buying ahead pays only if the stock sells before you need the cash. For example, if oil rises by UGX 700 a bottle next month, four extra weeks of stock (336 bottles) saves UGX 235,200. It also locks up UGX 2,352,000 for a month.
Festive weeks
December and the major holidays move drinks, rice and cooking oil faster. Last year's sales for the same weeks are the best guide. Inventory forecasting methods shows how to turn them into a number.
How to set reorder points in ArmPOS
ArmPOS holds one Stock Alert per product, checked in each warehouse. Set it to your reorder point, and the till tells you when to buy.
- Set the Stock Alert on each product you reorder, under Inventory on the product form. For the oil, enter 78 (Add your first products).
- Buy by the carton, sell by the piece. Make a Carton unit built on Bottle, Multiply 12, and use it as the Purchase Unit (Categories, brands and units).
- Turn on alerts for "Stock fell below its alert level", by push to your phone, by email, or both. ArmPOS checks stock every 10 minutes and tells the people at that warehouse (Get alerts on your phone).
- Reorder from Product Quantity Alerts. It lists each product at or below its Stock Alert, by warehouse (Reports to check every day).
- Record the order as a purchase with status ordered. Stock doesn't change until you edit it to received when the goods arrive (Record a purchase from a supplier).
- Check overstock monthly with the Dead Stock report (30, 60 or 90 days) and the Stock Aging report (Stock reports).
- Move stock between branches with a transfer, so one branch's overstock covers another's shortage. A transfer moves stock once it is approved (Move stock between warehouses).
For the rainy season, change the Stock Alert to 126, and back to 78 when the roads reopen. ArmPOS in Uganda shows what the local setup includes.
Frequently asked questions
What is the difference between overstocking and a stockout?
Overstocking is holding more than you will sell before it ages, expires or the cash is needed elsewhere. A stockout is having none when a customer asks.
How much safety stock should a small shop keep?
Start at half the days between your orders, times average daily sales. Keep more for products you can't be without, and lower it once your records show how much sales and deliveries really vary.
How do I avoid stockouts when my supplier is unreliable?
Set the reorder point with the longest delivery time you have seen, not the usual one. For your best sellers, keep a second supplier you can call.
What should I do with overstock I already have?
Stop reordering it, move it to the branch that sells it, then bundle or discount it before it ages further. Inventory liquidation covers the last resort.
How often should I review reorder points?
Every quarter, and whenever a supplier, a season or a price changes. A product that keeps hitting zero needs a higher reorder point; one that never gets near it needs a lower one.
Pick your 20 best sellers today and work out a reorder point for each with the table above. To have the till warn you the moment one is reached, create a free ArmPOS account.
