How the reorder point is worked out
- Sales during the lead time = average daily sales × lead time in days.
- Reorder point = sales during the lead time + safety stock. When the item falls to this level you order, and the delivery arrives before the stock runs out.
- Suggested quantity = daily sales × order cycle: enough to last until the next order.
An illustrative example: an item sells 20 units a day and an order arrives in 5 days. Sales during the lead time are 20 × 5 = 100. With 3 days of safety stock (60 units) the reorder point is 160. If you order every 14 days, the suggested quantity is 280, and the highest stock after delivery is 340 units.
Two ways to set safety stock
- Days of cover (the default): safety stock = daily sales × a number of days you choose. Simple, enough for most items, and it suits a pharmacy that keeps no daily statistics.
- Service level: safety stock = z × standard deviation of daily sales × square root of the lead time. z comes from the normal distribution table: 1.282 for 90%, 1.645 for 95%, 1.96 for 97.5% and 2.326 for 99%. With a standard deviation of 6, a 9-day lead time and 95%, the stock is 1.645 × 6 × 3 = 29.6, so 30 units. The more sales swing, or the longer the lead time, the more stock it asks for.
Shelf life and first-expiry-first-out
An expired medicine is a total loss, and surplus stock edges toward its expiry date. So the tool compares the time needed to sell the highest stock after delivery (safety stock + order quantity) with the shelf life left when the goods arrive. Under first-expiry-first-out (FEFO) the batches closest to expiry are sold first, and the World Health Organization’s storage and distribution guidance says the principle should be followed. If selling the stock takes longer than the shelf life, cut the quantity or shorten the order cycle.
Common mistakes
- Using one season’s average sales (winter, for seasonal medicines) for the rest of the year.
- Forgetting that real lead times are sometimes longer than promised: take yours from experience.
- Setting a large safety stock on every item; expensive or short-dated items deserve less.
- If you count stock every few days rather than daily, add the sales of those days to the stock you need.
The tool works out general stock figures. It gives no doses and recommends no medicine, and the example figures are illustrative, not from any pharmacy.
The calculator gives a figure for one item; a pharmacy has hundreds. MyClinic (Sehaty) tracks pharmacy stock item by item with quantities and expiry dates, and alerts you before a line runs out rather than after. For practical steps, see managing pharmacy stock and expiry dates.
Sources
- MIT ESD.260, Inventory Management: Probabilistic Demand (Chris Caplice): reorder point = demand over the lead time + safety stock (kσ), and converting a standard deviation between periods by the square root.
- GMP Compliance: FIFO, FEFO, LIFO: quotes the WHO (Annex 7, TRS 1025, 2020) text that the FEFO principle should be followed.
Questions
What is a reorder point?
It is the stock level at which you place an order: the sales expected during the lead time plus safety stock. If you order when stock reaches it, the delivery arrives before the item runs out.
How do I calculate safety stock for a pharmacy?
The simple way: daily sales × the days of cover you choose. The more precise way: z × the standard deviation of daily sales × the square root of the lead time, with z set by the service level you want.
How many days of cover should I choose?
There is no number for everyone. Use fewer days for short-dated or expensive items and more for essential items patients cannot be left without, then adjust from experience.
What quantity should I order?
The tool suggests sales over your order cycle. The real quantity also depends on the supplier’s minimum, discounts and shelf life, so compare the suggestion with them before ordering.
What does a 95% service level mean?
That stock covers demand in 95% of order cycles, so you run out in about 1 cycle in 20, assuming daily sales are roughly normally distributed.
Do you store the figures I enter?
No. The calculation runs in your browser and nothing is sent to us. To come back to it, use "Copy link to this calculation".
Read the guide
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