Lead time is the starting point
Lead time is the total time from deciding to buy until the goods are available to sell – supplier production, transport, customs and receiving. For a company importing into Sweden, that may be several weeks; every part of it adds uncertainty.
Safety stock
Safety stock (or buffer stock) covers variations in demand and lead time. A simple, commonly used formula:
Safety stock = (maximum daily sales × maximum lead time) − (average daily sales × average lead time)
Example: average sales 20 units/day, maximum 30; average lead time 25 days, maximum 35. Safety stock = (30 × 35) − (20 × 25) = 1,050 − 500 = 550 units.
More advanced methods use the standard deviation of demand and a target service level. Whatever the method, safety stock should be reviewed per SKU – fast movers and critical items need more cover than slow movers.
Reorder point (ROP)
The reorder point is the stock level at which a new order should be placed:
Reorder point = average daily sales × average lead time + safety stock
With the example above: 20 × 25 + 550 = 1,050 units. When available stock falls to 1,050, it is time to order.
Reorder points only work if the stock balance is accurate and up to date. In a 3PL setup, stock levels are synchronised from the warehouse system to your webshop or ERP – see keeping stock levels in sync and stocktaking.
Economic order quantity (EOQ)
EOQ suggests the order size that minimises the combined cost of ordering and holding stock:
EOQ = √(2 × annual demand × cost per order ÷ annual holding cost per unit)
It is a useful starting point, but minimum order quantities, price breaks, container sizes and seasonal peaks often matter more in practice.
Stockouts vs overstock
| Too little stock | Too much stock |
|---|---|
| Lost sales and backorders | Capital tied up in goods |
| Unhappy customers and marketplace penalties | Higher storage costs (more pallet or shelf locations) |
| Rush freight to recover | Risk of obsolete or expired stock |
Seasonal businesses should plan stock per period rather than per year: build stock before peaks and let it fall afterwards. A 3PL with flexible storage makes that easier, because you pay for the space you actually use. See peak and off-peak seasons.
Frequently asked questions
Does the 3PL decide my stock levels?
No. The goods owner decides what to buy and when. The 3PL provides accurate stock balances and movement data, which your purchasing planning builds on.
How does lead time affect safety stock?
The longer and less predictable your supplier lead time, the more safety stock you need. Imports from outside Europe usually have longer and more variable lead times than local suppliers.
What is the difference between a stockout and out of stock?
They mean the same in practice: an item is not available when there is demand. In webshops, out of stock (OOS) usually refers to the item showing as sold out.
Short definitions in the glossary: Safety stock · Buffer stock · ROP – Reorder Point · EOQ – Economic Order Quantity · Stockout · OOS – Out of Stock · Lead time
This page gives general information about logistics terms. It is not legal, customs or tax advice, and it does not describe the terms of any specific agreement with Karlholm Logistics.