Nothing derails operations faster than realizing you're out of stock on a key product—and your next shipment is three weeks away. Reorder points exist to prevent exactly this situation.
Reorder Point Definition
A reorder point (ROP) is the inventory level at which you need to place a new order with your supplier. When your stock drops to this level, it's time to reorder—not tomorrow, not next week, but now.
The reorder point accounts for two things: how much you'll sell while waiting for the new order to arrive (lead time demand), and how much buffer you want to maintain (safety stock).
The Reorder Point Formula
Reorder Point = (Average Daily Demand × Lead Time) + Safety Stock
That's it. Simple math, powerful results.
Breaking Down the Formula
Average Daily Demand: How many units you sell per day, on average. Calculate this by dividing total sales over a period by the number of days.
Lead Time: The number of days between placing an order and receiving it. This includes supplier processing time, manufacturing (if applicable), shipping, and receiving into your warehouse.
Safety Stock: Your buffer inventory. This protects you if demand spikes or your supplier delivers late.
Reorder Point Calculation Example
Let's work through a real example. You sell candles and here's your data for one popular SKU:
- Average daily sales: 25 units
- Supplier lead time: 14 days
- Safety stock: 10 days of coverage (250 units)
Step 1: Calculate lead time demand
25 units/day × 14 days = 350 units
Step 2: Add safety stock
350 units + 250 units = 600 units
Your reorder point is 600 units. When inventory drops to 600, place your next order.
Here's what happens: You order when you have 600 units. Over the next 14 days while waiting for delivery, you sell 350 units (your lead time demand). That leaves you with 250 units (your safety stock) when the new shipment arrives. You never dip below your safety buffer.
Why Reorder Points Matter
Prevent Stockouts
The most obvious benefit. Reorder points ensure you place orders early enough that new inventory arrives before you run out.
Reduce Rush Orders
Without reorder points, you're often caught off guard. That leads to expensive expedited shipping and premium pricing from suppliers who know you're desperate.
Free Up Mental Bandwidth
Instead of constantly worrying "do I need to order more of this?", you check inventory against reorder points. Below the line? Order. Above it? You're good.
Enable Automation
Most inventory systems can automatically generate purchase orders when stock hits the reorder point. Set it up once, and the system handles the rest.
Factors That Affect Your Reorder Point
Lead Time Changes
If your supplier's delivery time increases from 14 to 21 days, your reorder point needs to increase too. You'll be selling more units while waiting.
Demand Variability
Stable demand means you can run closer to the line. Variable demand means you need more buffer, which increases your reorder point.
Seasonal Adjustments
During peak seasons, both your daily demand and desired safety stock typically increase. Recalculate reorder points before major selling periods.
Supplier Reliability
If your supplier frequently delivers late, factor that into your lead time calculation. Use the realistic lead time, not the promised one.
Reorder Point vs. Reorder Quantity
These are different decisions:
- Reorder point answers "when do I order?"
- Reorder quantity answers "how much do I order?"
Your reorder point triggers the order. Your reorder quantity (often calculated using Economic Order Quantity or supplier minimums) determines the size of that order.
Setting Reorder Points for Multiple Products
Every SKU should have its own reorder point. A fast-selling hero product and a slow-moving accessory can't share the same reorder logic.
For brands managing hundreds or thousands of SKUs, calculating and maintaining individual reorder points manually becomes impractical. This is where inventory planning software earns its keep—automatically calculating and updating reorder points based on current demand patterns and lead times.
Common Reorder Point Mistakes
Using promised lead time instead of actual lead time. Track how long shipments actually take, not what your supplier promises.
Forgetting about receiving time. Lead time isn't just shipping. It includes the time to receive, inspect, and put away inventory so it's available to sell.
Not updating for demand changes. A product that sold 10 units/day last quarter might sell 25 units/day this quarter. Stale reorder points lead to stockouts.
Ignoring minimum order quantities. If your reorder point triggers an order for 200 units but your supplier's MOQ is 500, you need to account for that in your planning.
Key Takeaways
- Reorder point = (Average Daily Demand × Lead Time) + Safety Stock
- When inventory hits the reorder point, place your order immediately
- Each SKU needs its own reorder point based on its demand and lead time
- Use actual lead times, not promised ones
- Review and update reorder points regularly as demand patterns change
Frequently Asked Questions
Q: What is a reorder point?
A reorder point is the inventory level that signals it's time to place a new order with your supplier. It's calculated to ensure new stock arrives before you run out.
Q: How do you calculate reorder point?
Reorder Point = (Average Daily Demand × Lead Time) + Safety Stock. For example, if you sell 20 units/day with a 10-day lead time and 100 units of safety stock, your reorder point is 300 units.
Q: What's the difference between reorder point and safety stock?
Safety stock is your buffer inventory—the minimum level you want to maintain. Reorder point is higher—it's safety stock plus the inventory you'll sell while waiting for the new order.
Q: Should every product have the same reorder point?
No. Each SKU should have its own reorder point based on its specific demand pattern and lead time. Fast sellers need higher reorder points than slow movers.
Q: How often should I update reorder points?
Review monthly or quarterly, and always before major selling seasons. Update immediately if you see significant changes in demand or supplier lead times.