The reorder point is the stock level that triggers a new order. Order too late and you run out while waiting for delivery. Order too early and cash sits on shelves. The formula balances demand during the delivery wait against a safety buffer for surprises.
The formula
Reorder point (ROP) = (average daily demand x lead time in days) + safety stock. Lead time is the days between placing an order and receiving it. Safety stock is extra stock held against demand spikes and late deliveries. Both parts matter: the first covers normal days, the second covers abnormal ones.
Worked example: average demand 20 units a day, lead time 7 days, safety stock 60 units. Demand during lead time = 20 x 7 = 140. ROP = 140 + 60 = 200 units. When stock falls to 200, order.
Setting safety stock
The simplest safety stock method uses maximums: safety stock = (maximum daily demand x maximum lead time) – (average daily demand x average lead time). If maximum demand is 30 a day and maximum lead time is 10 days, while averages are 20 and 7: safety stock = (30 x 10) – (20 x 7) = 300 – 140 = 160 units. That is generous, so use it for critical items where a stockout is expensive.
A leaner statistical method uses a service factor (see the safety stock guide for the Z method). The right level depends on the cost of a stockout versus the cost of holding stock: expensive, critical items deserve more buffer than cheap, substitutable ones.
Worked example: two items
Item A: demand 20/day, lead time 7 days, safety stock 60. ROP = 200. Item B: demand 5/day, lead time 14 days, safety stock 20. ROP = 5 x 14 + 20 = 90. Item B’s reorder point is lower in units but higher in days of cover: 90 units is 18 days of demand, versus 10 days for item A. That is correct, because item B’s longer lead time needs more cover.
Review reorder points quarterly or after any demand or supplier change. A reorder point set during a quiet season will stock out in the busy season, and one set during a spike will overstock afterwards.
Mistakes to avoid
Using sales instead of demand: if you were out of stock, sales understate true demand. Using supplier-quoted lead time instead of actual lead time: measure real delivery times, including customs and inspection. Forgetting seasonality: average demand across a year hides a December peak. And setting safety stock once and never revisiting it: demand and lead times drift, so the buffer must drift with them.
Reorder points for seasonal demand
Annual average demand hides seasonal peaks. A product averaging 20 units a day might sell 40 a day in December and 10 a day in February. A reorder point built on the annual average stocks out in December and over-stocks in February.
Fix it with seasonal reorder points: compute average daily demand for each season separately, and set the reorder point per season. December’s reorder point, at 40 units a day with a 7-day lead time and 60 units of safety stock, is 40 x 7 + 60 = 340 units, far above the annual-average figure of 200. Review the seasonal points before each season, not after it starts.
Try it faster with the tool
You can follow every step above by hand, but the free Reorder Point Calculator — When to Reorder, with Safety Stock Built In does the arithmetic for you. Enter your numbers and it gives the answer right away, so you can check your hand calculation or skip straight to the result.
Quick tips
- ROP = (daily demand x lead time) + safety stock.
- Use real lead times, not supplier quotes.
- Review reorder points quarterly and after demand changes.