Reorder Point Formula: When to Reorder Inventory

What Is a Reorder Point?

A reorder point (ROP) is the inventory level at which you should place a new order with your supplier. When stock drops to this number, it's time to reorder — if you wait longer, you risk running out before the new shipment arrives.

Think of it like the fuel gauge in your car. You don't wait until the tank is empty to fill up. You refuel when it hits a certain level — enough to get you to the gas station without running dry. A reorder point works the same way for inventory.

The Reorder Point Formula

```

Reorder Point = Lead Time Demand + Safety Stock

```

Where:

That's it. The formula itself is simple. The work is in getting accurate inputs.

Worked Example: Basic Scenario

Your situation:

```

Lead Time Demand = 15 x 8 = 120 units

Reorder Point = 120 + 30 = 150 units

```

Action: When stock drops to 150 units, place your order. The 120 units will cover normal sales during the 8-day wait. The 30 units of safety stock protect you if sales run higher than average or the delivery comes a day or two late.

Worked Example: Seasonal Product

Your situation: You sell outdoor furniture. Average daily sales vary by season:

|--------|----------------|-----------|-------------|--------------|

*Lead time increases in summer because the supplier is also busier.

Notice how dramatically the reorder point changes — from 40 units in winter to 330 in summer. If you use a single reorder point year-round, you'll either stock out in summer or waste money warehousing excess in winter.

Key takeaway: Review and adjust reorder points at least seasonally. Monthly is better for items with significant demand variation.

Worked Example: Multiple Suppliers

Your situation: You source the same widget from two suppliers:

|----------|-----------|-----------|-----------|

You sell 10 units per day with 15 units of safety stock.

Reorder point for Supplier A:

```

ROP = (10 x 5) + 15 = 65 units

```

Reorder point for Supplier B:

```

ROP = (10 x 30) + 60 = 360 units

```

Note the much larger safety stock for Supplier B — overseas shipping has more variability, so the buffer needs to be bigger.

Practical strategy: Use Supplier B for regular replenishment (cheaper) and Supplier A as a fast backup when Supplier B is late or demand spikes unexpectedly. Set your primary reorder point at 360 (trigger Supplier B order), and a secondary alert at 65 (trigger emergency Supplier A order if Supplier B hasn't arrived).

Getting Accurate Inputs

The formula is only as good as its inputs. Here's how to get them right.

Average Daily Demand

Don't guess. Pull actual sales data from the last 3-6 months (or a full year if your product is seasonal).

```

Average Daily Demand = Total Units Sold in Period / Number of Days in Period

```

Example: You sold 1,800 units over the past 90 days.

```

Average Daily Demand = 1,800 / 90 = 20 units per day

```

Watch out for:

Lead Time

Lead time is the total time from placing an order to having the stock available to sell. This includes:

Example:

Many businesses only count the transit time and forget about processing and receiving. This leads to reorder points that are 2-3 days too low.

Track actual lead times, not quoted lead times. Record when you place each order and when you receive it. After 5-10 orders, you'll have a reliable average — and you'll know the variance, which feeds into your safety stock calculation.

Safety Stock

See the full guide: How to Calculate Safety Stock.

Quick version for those just starting out:

```

Safety Stock = (Max Daily Sales x Max Lead Time) - (Avg Daily Sales x Avg Lead Time)

```

Example:

```

Safety Stock = (30 x 10) - (20 x 7) = 300 - 140 = 160 units

```

If this seems like a lot of buffer, it is — the simple formula is conservative. As you build up data, switching to the statistical formula (Z x oLT) usually results in lower, more efficient safety stock levels.

Handling Variable Demand

Real demand isn't a straight line. Here's how to handle common patterns.

Growing Demand

If your average daily sales are increasing month over month, using a 6-month average will underestimate current demand. Use a weighted average that gives more importance to recent months:

Example:

|-------|------------|

A simple average is 18.3. But the trend is clearly upward. Use the most recent full month (22) or a 2-month weighted average ((18 + 22) / 2 = 20) for your reorder point calculation.

Declining Demand

The reverse applies. If a product is winding down, don't use a 6-month average that includes the higher earlier months. Reduce your reorder point to avoid being stuck with excess stock.

Promotional Spikes

If you're planning a promotion that will temporarily increase demand, manually adjust your reorder point in advance. After the promotion, revert.

Example: Normal reorder point is 150. You're running a 20%-off sale that you expect will double daily sales for two weeks. Temporarily increase the reorder point to 270 (accounting for higher demand during the lead time period).

Multiple Locations

If you stock the same item at multiple locations, calculate a separate reorder point for each one. Don't use aggregate demand.

Why: A central warehouse selling 100 units/day and a satellite location selling 5 units/day have very different replenishment needs. A combined reorder point would over-stock the satellite and under-stock the warehouse.

Transfer consideration: If you can transfer between locations in 1-2 days, the satellite location might use a lower safety stock — it can pull from the central warehouse in a pinch. Factor transfer lead time into the satellite's formula.

Automating Reorder Points

Manually monitoring stock levels against reorder points works when you have 20-30 SKUs. At 100+, it's impractical.

Inventory software can:

The value isn't just in avoiding stockouts. It's in freeing up your time. Instead of checking stock levels every morning, you respond to alerts and focus on running the business.

Common Mistakes

Setting Reorder Points Too Low

This usually happens when businesses exclude safety stock ("we'll just order when we get low") or undercount lead time. The result: chronic stockouts on popular items.

Never Updating Reorder Points

A reorder point calculated in January using January data will be wrong by June if demand has shifted. At minimum, update quarterly. Update immediately when:

Reorder Point at Zero

Some businesses don't set reorder points at all and just order when they run out. This guarantees a stockout lasting the full lead time on every replenishment cycle. Even a rough reorder point is better than none.

Ignoring Minimum Order Quantities

Your formula might say to reorder when you hit 100 units and order 200 units. But if the supplier minimum is 500 units, you need to factor that in — you'll be ordering less frequently but in larger quantities, which changes the dynamics.

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The reorder point formula is foundational. Get it right for your top 20 items and you'll eliminate most of your stockout pain. Extend it to all items and you'll have a disciplined, data-driven replenishment process.

InventoryQuick calculates reorder points from your actual sales data and alerts you when it's time to order. Start a 14-day free trial and take the guesswork out of replenishment.