The Reorder Level That Failed at Sunrise Fresh Mart
Sunrise Fresh Mart is a 2,000 sq ft organised neighbourhood store in Siliguri with 4,200 active SKUs and two billing counters. For 1-litre refined sunflower oil pouches, the supplier's average lead time is 4 days and the store sells about 30 pouches a day in a normal week. The owner set the reorder level at 90 pouches and safety stock at 60. During the Durga Puja week, sales rose to 50 pouches a day; the shelf went empty on the third day and six customers bought competing brands instead. A physical count on Monday found 40 pouches in the back room with expiry dates 45 days away, and the stock register showed 18 pouches more than the shelf count. Staff say they 'order when it looks low'. The store has no written purchase-order log, and supplier deliveries arrive without a checked challan. The owner wants to avoid both stockouts and expiry write-offs before the winter season.
1. Calculate a suitable reorder level and safety stock for the oil pouches, showing your reasoning for normal weeks and for the festival week. Explain why the existing level of 90 failed.
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Reorder level (ROL) = (average daily demand × lead time) + safety stock.
Normal week: 30 × 4 = 120; with safety stock 60, ROL = 180 pouches.
Festival week: 50 × 4 = 200; with the same 60 safety stock, ROL = 260 pouches.
The existing level of 90 is only 3 days' normal sales (90 ÷ 30), which is shorter than the 4-day lead time. Even in a normal week the store can run out before the next delivery, and in the festival week it covers only 1.8 days (90 ÷ 50). Safety stock of 60 was also set without considering demand variability. The store should use a dynamic ROL: raise it before known festival periods, or set ROL at 180 and add a festival buffer to 260. It should also review ROL monthly using actual sales, and keep safety stock for supplier delays, not as the main buffer. Ordering 'when it looks low' is visual and cannot handle lead-time demand.
2. Diagnose the causes of the 18-pouch register difference and the 40 near-expiry pouches, and propose three practical controls.
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The 18-pouch difference probably comes from deliveries received without a challan check, unrecorded shelf issues, wrong unit entry, and no cycle counting. The 40 near-expiry pouches suggest FIFO was not followed and expiry dates were not tracked.
Controls: (1) Goods Receipt Note (GRN): count every carton against the supplier challan before signing, and enter it into the system the same day. (2) FIFO with date labels: new stock goes behind old stock; a 60-day expiry alert list is checked weekly. (3) Cycle counting: count the top 20% of SKUs weekly and all SKUs monthly, and investigate any difference above 1%. (4) A simple purchase order log with expected delivery dates. (5) Barcode scanning at issue and return. These controls address both accuracy and expiry, and they are low-cost compared with the margin lost on six lost sales.
3. The owner asks whether to stop stocking the oil during festival weeks. Give a reasoned recommendation.
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Do not stop stocking oil. It is a high-frequency, basket-building product; customers who cannot buy oil may shift their whole weekly basket. Instead: (1) Pre-book festival stock with the supplier two weeks early and confirm the lead time in writing. (2) Temporarily raise ROL to 260 and safety stock to 100 for the festival SKU. (3) Limit pack sizes to the two fastest-moving ones to reduce expiry risk. (4) Place oil on a lower shelf with clear price tags and keep 20 pouches as display plus back stock. (5) Review sales daily during the festival. The decision should be based on gross margin per shelf space and basket size, not only on the 6% margin of oil. If the supplier cannot meet festival demand, consider a second supplier or a substitute brand, but delisting is a last resort.