Reorder without trapping cash
A stock shortage can interrupt sales. An oversized purchase can leave the same business unable to meet ordinary cash commitments. A useful reorder decision must answer two questions together: when is more stock needed, and how much can the business afford to buy now?
This guide is for an owner or manager of a small trading business who keeps a stock record and checks cash before approving purchases. It follows one product from a physical count to a purchase decision. You can repeat the process on paper or in a simple spreadsheet; no ARBSE product is required.
By Birhanu Arbse · 26 October 2026 · Version 1.0
Fictional educational example: Clear Shelf Demo Trading, its product records, dates, quantities, prices, supplier terms and cash figures below are invented for teaching. They are not client data, field research, market quotations or forecasts. Replace every assumption with evidence from your own business.
1. Count stock that can actually serve the next customer
Clear Shelf Demo Trading sells A4 document folders, counted as individual folders (units). At opening on Monday 26 October 2026, the owner and stockkeeper check the shelf against the stock record.
| Stock check | Units |
|---|---|
| Physical stock on hand | 180 |
| Damaged stock, excluded | 20 |
| Usable stock: 180 − 20 | 160 |
| Reserved for a separate customer commitment | 20 |
| Free usable stock: 160 − 20 | 140 |
| Stock already on order | 0 |
Stock on hand is what is physically present. Usable stock excludes items that cannot be supplied in their current condition. Reserved or committed stock is usable stock promised to a particular customer; it is not freely available for other sales. Stock on order is an outstanding supplier order, not stock already on the shelf.
The reserved 20 folders are due for collection immediately. That separate one-off commitment is excluded from the ordinary-demand history and estimate used below. Subtracting it from usable stock therefore does not count the same demand twice. If your demand estimate already includes a reservation, remove that overlap before calculating cover.
Set damaged goods aside and record why they were excluded. Do not quietly treat the stock record’s 180 units as available simply because the software or notebook still shows that balance. Count, condition and commitments come before a formula.
2. Put demand and lead time in the same units
For this fictional shop, a trading day is Monday to Friday; it does not trade at weekends. This is a scenario assumption, not a statement about normal business hours elsewhere.
Its invented record shows 400 ordinary folders sold during 20 trading days. The working average is:
400 units ÷ 20 trading days = 20 units per trading day.
Average demand describes that period. It does not promise that tomorrow’s customers will buy exactly 20 folders. Check whether the period includes stockouts, missing sales records or unusual orders. Sales during a stockout may understate what customers wanted to buy.
Assume the supplier needs 5 trading days from order placement until checked, usable stock is available. This includes the preparation, transport and receipt checks needed in this example. The owner must confirm that timing before ordering; a dispatch date alone is not an availability date.
An order placed at opening on 26 October is assumed available at opening on 2 November, after the five selling days from 26 to 30 October. The dates illustrate the agreed counting convention. If your supplier quotes calendar days while your demand record uses trading days, map the actual receipt date and the selling days before it. Do not multiply incompatible units.
Management chooses a 40-unit safety buffer, equivalent to two trading days at the working average: 2 × 20 = 40 units. This is a practical allowance for this example, not a statistically calculated service level or a guarantee against shortages.
3. Calculate the reorder trigger
Reorder point = expected demand during lead time + chosen safety/buffer stock.
| Calculation | Result |
|---|---|
| Lead-time demand: 20 units/day × 5 trading days | 100 units |
| Chosen safety buffer | 40 units |
| Reorder point: 100 + 40 | 140 units |
| Free usable stock plus relevant stock on order: 140 + 0 | 140 units |
Here, “day” in the multiplication means a trading day. The result is units, not days or ETB.
The decision measure is free usable stock plus confirmed incoming stock that will be available when needed. Here it is 140 units, exactly at the 140-unit reorder point, so management should review and place an appropriate replenishment order now, after the checks below.
Where stock is already on order, record its quantity and expected usable receipt date. An incoming shipment arriving after a likely shortage cannot protect the earlier gap. Check the delivery timeline as well as the combined quantity; do not place duplicate orders because an existing purchase order was omitted.
The formula provides a warning level for these assumptions. It does not prove that demand will stay steady, the supplier will arrive on time, the buffer is sufficient, or a purchase is affordable. It also does not calculate the order quantity. A reorder trigger of 140 units does not mean “buy 140” or “buy everything cash permits.”
This example assumes daily stock review. If you only review weekly, sales between reviews can carry stock below the trigger before anyone acts. Include that review interval in your planning or increase review frequency; do not assume this daily-review example works unchanged.
4. Compare a desired order with the cash available
The owner initially wants 200 folders, representing 200 ÷ 20 = 10 trading days of ordinary demand. That is a candidate quantity for discussion, not an optimal order calculated from complete cost data.
For the example, the supplier accepts orders of at least 100 units, in packs of 10, at ETB 300 per individual folder. All candidate orders below use the same price. Assume immediate payment and no separate delivery or other cash charges. These are fictional terms, not an available supplier offer. In practice, include every charge payable for the order and rerun the test using the actual quote; this assumption says nothing about tax treatment.
Management has ETB 100,000 in cleared cash before setting aside the protected amount. This is the cash pool being considered for purchasing, not permission to spend all of it. Expected customer receipts and hoped-for future sales are excluded.
Management intends to protect ETB 50,000 for its upcoming operating commitments and contingency. The amount must come from the business’s own cash schedule and risks. It is not a universal reserve recommendation. Start with a checked cash position; the Weekly Cash Control and Bank Reconciliation guide explains how to investigate differences before trusting a balance.
For the desired order:
200 units × ETB 300 = ETB 60,000 purchase value.
ETB 100,000 − ETB 60,000 = ETB 40,000 cash remaining.
That leaves ETB 10,000 less than the ETB 50,000 protected operating amount. The 200-unit purchase fails this cash test even though replenishment is needed. Cash in the bank is not the same as cash available after upcoming commitments.
5. Choose a smaller order and show the trade-off
The spending capacity after protecting operations is:
ETB 100,000 − ETB 50,000 = ETB 50,000.
At ETB 300 each, that buys at most 166 whole units before pack restrictions: 166 × 300 = ETB 49,800; 167 × 300 = ETB 50,100, which exceeds the spending capacity. Packs of 10 reduce the feasible ceiling to 160 units. This ceiling is a cash constraint, not a recommendation to spend up to it.
| Order units | Pay, ETB | Cash left, ETB |
|---|---|---|
| 100 | 30,000 | 70,000 |
| 150 | 45,000 | 55,000 |
| 160 | 48,000 | 52,000 |
| 200 | 60,000 | 40,000 |
Every row uses purchase value = quantity × 300 and cash left = 100,000 − purchase value. The first three remain above the protected ETB 50,000; the last does not. All meet the fictional minimum quantity and pack size.
Management chooses 150 units, costing ETB 45,000 and leaving ETB 55,000. The headroom above the protected amount is 55,000 − 50,000 = ETB 5,000. Compared with buying 160, buying 150 leaves another ETB 3,000 in cash while providing 10 fewer folders. Management prefers that extra flexibility while it watches demand and supplier performance.
This choice also has a stock rationale. If ordinary demand follows the working average, free usable stock immediately before receipt will be 140 − 100 = 40 units. Receipt of the 150 usable folders then brings it to 40 + 150 = 190 units. That is 50 units above the 140-unit trigger. A 100-unit order would instead bring it only to 40 + 100 = 140, requiring another reorder review as soon as it arrived.
The recommendation is therefore: approve 150 units now, subject to confirming the count, quote, cash commitments and usable receipt date; review again the next trading day. The 200-unit desire is declined because it breaches the protected amount. The 160-unit cash ceiling is not automatically selected. This is a reasoned compromise, not a claim of optimal economic order quantity.
After placing the order, record 150 units on order. Free usable stock is still 140 until sales or receipts occur. The combined position becomes 140 + 150 = 290 units, but that does not mean 290 folders are physically available. Do not add the shipment to the shelf balance before receipt and checking.
No supplier credit or financing is assumed. A later top-up would need its own cash and stock check. You may ask about smaller deliveries or different terms, but do not build a plan around an unaccepted supplier concession.
6. Test what could break the decision
A buffer buys time; it does not remove uncertainty. Under the stated average, two extra trading days of delay consume 2 × 20 = 40 units, using all the expected stock remaining at the original receipt date. Stock would reach zero just as a shipment two trading days late became usable. Another day of demand would then create an unmet requirement. Escalate a known delay before reaching that point.
Check these exceptions before treating a historical average as a useful planning input:
- Seasonality: a quiet-period average may be too low for an approaching busy period. Compare relevant periods and explain the adjustment instead of applying an unexplained uplift.
- Promotions and project orders: record the planned event or confirmed order separately. Check whether it is already included in the demand estimate so it is not counted twice.
- Unusual one-off sales: a single large order can distort the ordinary rate. Keep both the actual sales record and the reason for excluding an exceptional event from the baseline.
- Supplier delays: use the time until goods are usable, including checks. Confirm dates and investigate missed promises rather than repeatedly increasing orders without explanation.
- Minimum-order quantities and packs: a supplier’s minimum may exceed the affordable amount. Seek an alternative quantity, timing or supplier before committing; availability of alternatives is not guaranteed.
- Damaged or unusable stock: exclude it from available cover, record the loss and investigate recurring damage. Quarantined stock is not a substitute for replenishment.
- Demand decline: an old average may justify stock that will now sit unsold. Check recent sales and avoid repeatedly topping up a slow-moving line to an outdated target.
- Price changes and extra charges: recalculate the entire cash outflow. A previously affordable quantity can fail once the quote or delivery charge changes.
If even the minimum order would breach the cash floor, stop automatic approval. The owner should compare a smaller agreed delivery, revised timing, prioritising faster-moving items or an alternative source, while making the shortage risk explicit. Do not silently spend protected operating money or promise customer availability that the evidence cannot support.
7. Keep a reusable stock-and-cash review record
Copy this two-column record into a notebook or spreadsheet and replace the example values. Add the evidence references beside your entries. Keep all stock quantities in one unit and define the demand and lead-time basis together.
| Review field | Completed fictional example |
|---|---|
| Review date | 26 October 2026, opening |
| Product and stock unit | A4 document folder; individual unit |
| Physical stock on hand | 180 units |
| Damaged or unusable stock | 20 units, excluded |
| Usable stock | 160 units |
| Reserved stock | 20 units; separate from ordinary demand |
| Free usable stock | 140 units |
| Stock on order before decision | 0 units |
| Average demand and basis | 20 units per trading day; 400 over 20 trading days |
| Lead time and expected usable date | 5 trading days; opening 2 November 2026 |
| Safety/buffer | 40 units; chosen management allowance |
| Reorder point | 140 units |
| Suggested quantity | 150 units; 15 packs of 10 |
| Unit cash cost | ETB 300 per individual unit |
| Purchase value | ETB 45,000 |
| Available purchasing cash, before reserve | ETB 100,000 cleared cash |
| Protected operating cash | ETB 50,000 |
| Cash after proposed purchase | ETB 55,000 |
| Headroom above protected cash | ETB 5,000 |
| Decision | Approve 150 subject to current evidence checks |
| Owner | Business owner approves; stockkeeper updates quantities |
| Next review date | 27 October 2026, opening; earlier if an exception arises |
For another product, complete a separate row-set or sheet. Then consolidate all proposed purchases against the same cash pool. Five individually affordable orders may be unaffordable together; do not give each product the entire unspent cash balance.
Short approval checklist
- ☐ Count stock, identify unusable items and reconcile differences with the record.
- ☐ List reservations and incoming orders with dates; remove duplicate demand assumptions.
- ☐ Check the sales period and exceptions; match demand units to lead-time units.
- ☐ Calculate the trigger and check the expected stock position before receipt.
- ☐ Confirm quantity, pack size, total payable and usable delivery date with the supplier.
- ☐ Check cleared cash, other approved purchases and operating commitments.
- ☐ Compare cash remaining with the protected amount; document a smaller alternative if needed.
- ☐ Record the decision, approver, evidence and next review; update the order register after approval.
8. Assign the follow-up before placing the order
The stockkeeper prepares the count and stock movement record. The owner reviews the exceptions, cash schedule and purchase proposal. If one person performs both roles, use a separate review step and date it; a repeat of the same unchecked figure is not independent confirmation.
Retain the count sheet, damage note, reservation list, sales-period calculation, supplier quotation and confirmed timing, open-order list, cash reconciliation, operating-commitment schedule and signed or dated decision. Link the purchase order, payment evidence and goods-received check to the same review reference. This is a practical control file, not a prescribed legal retention period.
Escalate an unexplained stock-count difference, an overdue incoming order, a change in price or availability, or any proposal that takes cash below the protected amount. Also escalate a new customer commitment that changes the expected shortage date. The owner should decide the response and record it before someone increases the order or promises a delivery date.
At the next review, compare actual sales with the working estimate, confirm the supplier’s progress and update both stock and cash. After receipt, count and inspect the shipment before moving it from “on order” to “usable.” The decision is complete only when the records reflect what actually arrived and what was paid.
Use the process in your own business
The useful result is a purchase decision you can explain: what stock is free, why replenishment is due, what quantity was considered, what cash remains and who will review the risks. Keep the assumptions visible so the decision can change when the evidence changes.
Find related practical guides in Resources. For help reviewing the assumptions behind a specific stock-and-cash decision, ARBSE’s Focused Decision Review describes the relevant advisory scope.
Method and further reading
The worked business, decision and reusable record were created for this resource. General background on keeping stock records and reviewing reorder inputs is available in the Australian Government’s inventory management guide; its cash-flow guide discusses how inventory choices affect cash. These are background references, not Ethiopian legal or tax guidance. This article makes no tax, statutory-invoicing or industry-specific compliance claim.