1
Key Concepts
Overstocking ties up capital in unsold inventory, increases storage costs, and risks obsolescence — particularly costly for trend-sensitive categories like fashion. Understocking causes lost sales, marketplace penalty risk (Amazon and others penalize frequent stockouts), and customer dissatisfaction when popular items are unavailable. Both problems typically stem from the same underlying issue: reordering decisions based on intuition or a fixed reorder quantity, rather than actual demand data and lead-time-adjusted forecasting.
2
Best Practices
Set reorder points based on actual sales velocity and supplier lead time for each SKU, not a flat quantity applied across your whole catalog. Review and adjust reorder points periodically, since demand for any given SKU shifts over time — a reorder point set six months ago may no longer match current velocity. Distinguish between genuinely fast-moving SKUs (where slight overstocking is a reasonable buffer) and slow movers (where even small overstocking ties up disproportionate capital).
3
Implementation
Check your current stockout frequency and your current dead-stock levels (inventory that hasn't sold in 60-90+ days) — these two numbers together tell you whether you're skewing toward overstocking, understocking, or reasonably balanced. Adjust reorder points for the specific SKUs driving whichever problem is more prevalent, rather than making a blanket adjustment across your entire catalog.
Pro Tip
Tracking both stockout frequency and dead-stock levels together reveals the real picture — a seller focused only on avoiding stockouts often drifts into overstocking without realizing it, since the two problems pull in opposite directions.
Key Takeaways
- Overstocking and understocking usually share the same root cause: non-data-driven reordering
- Set reorder points per SKU based on actual velocity and lead time, not a flat quantity
- Review reorder points periodically as demand shifts over time
- Track both stockout frequency and dead-stock levels to see your real balance
- Treat fast-movers and slow-movers differently when setting buffer stock levels
