Supplier Order Cadence: When to Order, How Much, and How to Prevent Stockouts

In most small businesses, a supplier order goes out when somebody notices something has run out. The standing result is two problems at once: shortages on fast-moving items and excess on items someone ordered "just in case". Both come from the same cause - there is no fixed ordering rhythm and no defined reorder point per item.

Why "order when it runs out" is always late

Between the moment somebody notices and the moment stock is on the shelf there are four stages: noticing, approving, ordering, and waiting for delivery. Only the last is the supplier's lead time; the first three are internal time, and in a business with no routine they are usually longer than they feel.

This is why simply holding more stock does not fix it. A business ordering without a rule will still run out on double the inventory, because the problem is not the quantity but the moment the clock starts.

The reorder point calculation

A reorder point is the stock level at which you order again. The basic formula:

Reorder point = (average daily usage × lead time in days) + safety stock

Example: an item selling an average of 8 units a day, a 10-business-day lead time, and safety stock covering 3 selling days. The reorder point is 8×10 + 24 = 104 units. When stock hits 104 you order - no discussion, no checking how it feels.

Two inputs are routinely entered wrong:

• Daily usage - calculate against actual selling days, not calendar days. A month with holidays is not 30 selling days.
• Lead time - not what the supplier promised, but what you measured on the last three orders.

Lead time is a range, not a number

A supplier who delivers "within a week" usually delivers in 5 to 12 days. The average is 7, and anyone planning to the average runs out every time delivery lands on the long end - which is roughly half the time.

So safety stock is not "a little extra" but precisely the gap between the average and the worst measured time. Three data points are enough to see the range, and they are worth recording: order date, actual delivery date, the difference.

Fixed cadence beats a perfect order

For a small business, a fixed cadence beats optimisation. One fixed day a week when you review items below their reorder point and order - that is the whole process. The benefit is not the exact quantity but that nobody has to remember.

How to pick the cadence: fast-moving items with short lead times go weekly. Slow items or imports with lead times measured in weeks go monthly, and separately. Mixing both in one run means the slow items get ordered too often and the fast ones not often enough.

What to agree with the supplier in writing

• Minimum order quantity per item and per order.
• Stated lead time and what happens when it is missed.
• Payment terms - when the clock starts, at document or at delivery.
• Shortage policy - do they backorder, cancel, or hold.
• Returns of a damaged or wrong item, and who pays the freight.
• Price changes - how much notice, and whether an open order is protected.

The last point is the one that gets forgotten and surfaces at the worst moment: an order placed at one price arriving on an invoice at another. Agreeing notice up front avoids the argument entirely.

Payment terms are not ordering terms

Israeli B2B payment terms are usually stated as "shotef + 30" or "shotef + 60" - payment falls at the end of the month the invoice was issued, plus that many days. Shotef+30 on an invoice dated the 2nd is about 58 days of credit in practice; the same terms on an invoice dated the 29th is about 31. That is why suppliers care about the issue date, and why it is worth knowing exactly when you order.

Payment terms affect cash flow but not the reorder point. Mixing them - "we will order next month to push the payment" - is the fastest route to a stockout. If cash is the real constraint, the place to handle it is the weekly cash visibility routine, not the order quantity.

What do you do about a supplier who is always late?

First, measure. Three orders with promised date against actual date turn a complaint into a fact, and that is a completely different conversation with the supplier. Second, adjust safety stock to reality - a consistently late supplier is a supplier with a longer lead time, not a supplier who is late.

Then decide: either hold more stock and accept the cost, or find an alternative supplier for the critical items only. A second source for everything is usually too expensive to manage; a second source for the three items you cannot operate without is reasonable insurance.

Connecting it to a system

Once a reorder point exists, it should live somewhere that updates itself - a field in the inventory system, or a sheet fed by a sales report. A reorder point that lives in one person's head is exactly the risk described in single-owner spreadsheet knowledge transfer, and the question of when a sheet stops being enough is covered in inventory in an ERP versus a spreadsheet.

Sources

• How to improve business efficiency
• Israel Tax Authority - business information