What Is a Reorder Point?
The reorder point is the stock level that triggers a new purchase order. Set it correctly and you never run out.
Key Takeaways
- Reorder point = (Average Daily Sales × Lead Time) + Safety Stock.
- Setting reorder points too low causes stockouts; too high causes excess inventory.
- Reorder points should be reviewed regularly as sales velocity and lead times change.
The formula
Reorder Point = (Average Daily Sales × Lead Time in Days) + Safety Stock. If you sell 20 units per day, your lead time is 30 days, and you want 100 units of safety stock, your reorder point is (20 × 30) + 100 = 700 units. When stock falls to 700, place a new order immediately.
The logic behind it
The formula ensures that even if nothing goes wrong, you'll reach zero stock at exactly the moment the new order arrives (lead time × daily sales = units consumed during lead time). Safety stock provides a buffer for demand spikes or lead time delays. The reorder point is the minimum stock level that prevents a stockout under normal conditions.
Inputs that must be accurate
Average daily sales must account for trend and seasonality — a product selling 20 units per day in April may sell 50 in December. Lead time must reflect actual delivery performance, not quoted lead time. Safety stock must be calculated based on lead time variability and acceptable stockout risk. Each input error cascades into stockout or overstock outcomes.
Automating reorder point alerts
Manually tracking every product's stock level against its reorder point is impractical for businesses with more than a handful of SKUs. AskBiz monitors your connected inventory data and alerts you automatically when any product falls below its reorder point — so replenishment happens without manual checking.