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Right stock, every week
You keep the right amount of stock by ranking items by annual usage value, setting a reorder point per item, and ordering a quantity that balances ordering cost against holding cost. ABC classes tell you which items deserve a weekly count and which can wait a quarter. A short weekly routine then holds the whole system together.
Rank items by annual usage value, set a reorder point per item, and order the EOQ quantity.
Start by computing annual usage value for every SKU: multiply annual units sold by the cost per unit. Sort descending. The top items that together cover 70-80 percent of that value are class A, the next band is class B, and the remainder is class C.
For each item set a reorder point: average daily demand times supplier lead time in days, plus safety stock sized to demand and lead-time variability. When on-hand stock crosses that point, place an order of the EOQ quantity.
The weekly routine then keeps the numbers honest: receive, label, count the A items, reorder what crossed its point, and clear dead stock.
Class A is about 10-20 percent of items covering 70-80 percent of the value; class B the next 20-30 percent; class C the remainder.
The bands are typical, not fixed. A shop with 20 SKUs might land at 3 class A items, 6 class B and 11 class C, or shift a boundary by one item without breaking the method.
Count frequency follows the class: A items are counted most often, C items least often. Cycle counting counts a small share of items on a rolling schedule instead of closing the shop for one annual count.
Order the EOQ quantity Q = sqrt(2 x D x S / H), computed from your own demand, ordering cost and holding cost.
The formula balances the fixed cost S of placing an order against the cost H of holding one unit for a year, given annual demand D. If S rises, order less often in larger batches; if H rises, order smaller batches more often.
Work it from weekly demand: multiply weekly units by 52 to get D, estimate S as the staff time and paperwork cost of one order, and H as the annual cost of holding one unit including storage and capital.
The reorder point and the EOQ answer different questions: when to order, and how much to order. You need both.
More variability in demand or in supplier lead time requires more safety stock for the same service level.
| Class | Share of items | Share of usage value | Typical count frequency |
|---|---|---|---|
| Class A | 10-20% (about 3 of 20) | 70-80% | Weekly |
| Class B | next 20-30% (about 6 of 20) | next band of value | Monthly |
| Class C | remainder (about 11 of 20) | remainder of value | Quarterly |
| Reorder point | daily demand x lead time days | plus safety stock | checked weekly |
| EOQ | Q = sqrt(2 x D x S / H) | units per order | recomputed when D, S or H shift |
| Dead stock | no movement | 6-12 months | cleared in the weekly routine |
| Safety stock | buffer units | rises with variability | reviewed when lead times change |
Reorder point = average daily demand x supplier lead time in days + safety stock.
Average daily demand is annual demand divided by 365, or weekly demand divided by 7. Supplier lead time in days is the time from placing the order to receiving it.
Safety stock covers variability: more variability in demand or in supplier lead time requires more safety stock for the same service level. Without it, a late delivery or a busy week turns into an empty shelf.
Track actual lead times for a few weeks before fixing the safety stock; a single average hides the bad weeks that cause stockouts.
Dead stock: no movement over a 6 to 12 month window, tying up both cash and shelf space.
Dead stock is stock with no movement over a long window, often set at 6 to 12 months. It ties up cash that could buy the next class A order and shelf space that could hold fast movers.
Flag items that cross the window, decide a disposition, and record the decision so the same item does not creep back in. Clearing dead stock is part of the weekly routine, not an annual clean-up.
Standard inventory-control formulas and rules: ABC ranking by annual usage value, reorder point with safety stock, EOQ, cycle counting, dead-stock window.