You want to know when to reorder, and how much to keep, so that you never run out of an item patients ask for and never hold stock that expires on the shelf. Those two fears pull in opposite directions: more stock protects you from shortages and exposes you to expiry. The calculation that balances them has three numbers: the reorder point, the safety stock behind it, and the order quantity. This guide shows the formulas with worked examples you can follow on a calculator, and the checks that keep the result honest. For the shelf routines (FEFO, watchlists, counting) see Pharmacy stock and expiry management; here the subject is the arithmetic.
The two questions every order answers
Every order answers two questions: when (at what stock level) and how much. The reorder point answers the first: the stock level at which you order, set so the delivery arrives before the shelf is empty. The order quantity answers the second.
If you want to try the numbers on an item as you read, the reorder point calculator draws the stock level over three order cycles, with the reorder point, the safety stock and the lead time marked, and lets you move daily sales and lead time with sliders.
Step 1: Measure daily sales honestly
Everything starts from average daily sales of the item: the units sold in the last 30 days divided by the days you were open. Use sales, not purchases. If sales are seasonal (cold and flu medicines in winter, say), use the recent period, not the yearly average, and update it when the season turns.
Step 2: The reorder point
The standard formula is:
Reorder point = average demand during the lead time + safety stock
and the demand during the lead time is daily sales × lead time in days. The lead time is the time from placing the order to having the goods on the shelf, counted in the days you sell.
Worked example (illustrative numbers): an item sells 15 units a day and a delivery takes 6 days. Demand during the lead time is 15 × 6 = 90 units. If you keep 4 days of sales as safety stock, that is 15 × 4 = 60 units. The reorder point is 90 + 60 = 150 units. When the stock falls to 150, you order; during the 6 days of waiting you sell about 90, and you still have 60 on the shelf when the delivery arrives.
Step 3: Safety stock the simple way: days of cover
Safety stock is the extra stock that absorbs the surprises: a late delivery, or a week when sales run above average. The University of Iowa's inventory notes define it exactly so: the reorder point minus the expected demand during the lead time. The simplest way to set it is a number of days of cover:
Safety stock = daily sales × days of cover
This is the method to start with. It needs no statistics, and for most items it is enough. The question is how many days. Give more days to an item a patient needs every day (a chronic-disease medicine, say), where a stock-out sends the patient elsewhere, and fewer to a slow, cheap, easily substituted one.
Step 4: When sales and lead times swing
If an item's sales jump around a lot, a fixed number of days is either too generous on calm items or too thin on volatile ones. The textbook method sets safety stock from how much the sales vary, and from a service level, the share of order cycles in which you do not run out. MIT's logistics course (ESD.260) writes it as safety stock = k × σ, where σ is the standard deviation of demand over the lead time and k is read from the normal distribution; the University of Iowa defines the cycle service level as the percentage of cycles without a stock-out. For a steady lead time, the standard deviation over the lead time is the daily one multiplied by the square root of the lead time (MIT's notes give the same square-root rule for converting between periods):
Safety stock = z × σ(daily) × √(lead time in days)
with z from the normal table: about 1.282 for 90%, 1.645 for 95%, 1.96 for 97.5% and 2.326 for 99%. A 95% level means that, on average, you run out in one order cycle in twenty.
How to get σ(daily): take 30 days of daily sales of the item and use the STDEV function in a spreadsheet. A tiny illustration with only 7 days (far too few in practice): 18, 22, 25, 15, 20, 19, 21. The mean is 20, the squared deviations add up to 60, divided by 6 that is a variance of 10, and the standard deviation is about 3.16.
Worked example: daily sales 20, σ 3.16, lead time 9 days, service level 95%. Safety stock = 1.645 × 3.16 × √9 = 1.645 × 3.16 × 3 = 15.6, so 16 units. The reorder point is 20 × 9 + 15.6 = 195.6, rounded up to 196.
Lead times vary too, and that matters more than most people expect. The Iowa notes give the variance of demand during the lead time when both the daily demand and the lead time are random: the average lead time × the variance of daily demand, plus the square of average daily demand × the variance of the lead time. Take the same item, with deliveries that average 9 days but swing by a standard deviation of 2 days. The variance is 9 × 3.16² + 20² × 2² = 90 + 1,600 = 1,690, a standard deviation of about 41. Safety stock at 95% = 1.645 × 41.1 = 67.6, so 68 units, against 16 when the lead time was steady. The reorder point becomes 180 + 67.6 = 248. An unreliable supplier costs far more safety stock than variable sales. Record the real order-to-delivery days for your last 10 orders from each supplier and use their average and spread, not the promised time.
Step 5: Do not treat every item alike (ABC)
A pharmacy stocks thousands of items, and you cannot fine-tune each. ABC classification ranks items by their value to the business (sales, cost or profit, depending on your goal) as A (most important), B and C (least). The split is a rule of thumb: TechTarget notes it does not strictly follow the 80/20 pattern and the percentages are guidelines you adjust. A practical use (illustrative):
- A items (the few that carry most of the sales or profit, and critical medicines): the service-level method, frequent review, and a watch on supplier lead times.
- B items: days of cover, reviewed at your regular count.
- C items (many slow lines): a simple minimum and maximum quantity.
Step 6: How much to order, and how often
The simplest order quantity is daily sales × days between orders. At 15 units a day and an order every 10 days, that is 150 units. Just after delivery you hold 60 + 150 = 210 units, which takes 210 ÷ 15 = 14 days to sell.
How often you check the stock changes the reorder point. The reorder point above assumes you notice the moment stock reaches it. If you only count the shelf once a week, stock can fall below the reorder point on day one and stay unnoticed until the next count, so the stock must last from one check to the delivery that follows the order: the lead time plus the days between checks. For an item selling 20 a day with a 5-day lead time and a weekly check, demand over the exposure is 20 × (5 + 7) = 240, against 100 with a daily check. An alert on the day stock reaches the reorder point removes the need for the larger stock.
Step 7: The shelf-life guard
The largest order that is safe is limited by expiry. Under first-expiry-first-out (FEFO), the principle the World Health Organization's storage and distribution guidance says should be followed, the batches closest to expiry sell first, but the whole stock after a delivery still has to sell before the shortest remaining date.
The test: (safety stock + order quantity) ÷ daily sales must not exceed the shelf life left when the stock arrives.
Worked example: the item above sells 15 a day, with 60 safety stock and an order of 150. Time to sell = 210 ÷ 15 = 14 days. If the supplier ships you stock with only 12 days of shelf life left (illustrative), the plan fails by 2 days. The largest order that works is 15 × 12 − 60 = 120 units; alternatively order every 8 days instead of 10. Ask suppliers for the remaining shelf life when they quote, and favour smaller, more frequent orders for short-dated items.
Common mistakes
Taking the supplier's promised lead time instead of the measured one; one safety stock rule for every item; ordering a round number that ignores expiry; and setting a reorder point once and never reviewing it. Revisit your top items every month.
The next step
Choose your five most important items. For each, write down the 30-day daily sales, the last five real lead times, and a service level you can defend, then work out the reorder point and safety stock with the reorder point calculator, and check the shelf-life test. If you want the reorder point to trigger an alert by itself, Softwiro's MyClinic (Sehaty) tracks pharmacy stock item by item, with quantities and expiry dates and an alert before a line runs out; contact us if you would like to see it. For choosing software in general, read Choosing pharmacy software in Egypt.
This is general information for planning, and every figure in the examples is illustrative.
Sources
- Inventory Management: Probabilistic Demand (ESD.260 Logistics Systems, Chris Caplice) — MIT OpenCourseWare. Reorder point = lead-time demand + kσ, and the square-root rule for standard deviations.
- Reorder Point (lecture slides) — Dennis Bricker, University of Iowa. Definitions of safety stock and cycle service level, and the variance of demand over a random lead time.
- ABC classification — TechTarget. Items ranked A, B and C by value to the business; the percentage splits are guidelines, not strict.
- FIFO, FEFO, LIFO: what is the meaning? — GMP Compliance. Quotes WHO TRS 1025, Annex 7 (2020): FEFO should be followed.