A reorder point is the stock level at which you place your next order. It is calculated from average daily sales multiplied by supplier lead time in days, plus a safety buffer. The point is to order early enough that new stock arrives before the shelf empties, which makes it a question about time rather than about units.
In more detail
The reorder point answers a timing question disguised as a quantity question. You are not asking how much stock feels low. You are asking how much you will sell while you wait, and whether you have that much left.
This is why a single catalogue-wide number never works. Ten units is six weeks of stock for a product selling twice a week and two days for one selling five a day. Two products, one number, two completely different meanings.
The reorder point moves as demand and lead times move. Treating it as a setting you configure once is the most common way it drifts out of usefulness.
How it is calculated
Reorder point = (average daily sales × lead time in days) + safety stock
Lead time here means elapsed days from placing the order to the stock being sellable, not the production time a supplier quotes.
Worked example
Take a product selling an average of 4 units a day. Your measured lead time with that supplier is 21 days, so you will sell about 84 units while waiting.
Add safety stock. If deliveries from this supplier have arrived up to 7 days late, that is another 28 units of cover, giving a reorder point of 112.
So when stock reaches 112 units, you order. Not because 112 is low, but because it is exactly the amount you expect to sell before more arrives.
The figures above are invented to make the arithmetic legible. They are not a benchmark and should not be cited as one.
The calculation, line by line
| Input | In the example | Where it comes from |
|---|---|---|
| Average daily sales | 4 units | Recent sales, not an annual average |
| Lead time | 21 days | Measured from your own purchase orders |
| Demand during lead time | 84 units | 4 × 21 |
| Safety stock | 28 units | 7 days of late-delivery cover |
| Reorder point | 112 units | 84 + 28 |
Where people get it wrong
- Using the supplier's quoted lead time. That figure usually describes production time under good conditions. The number you need is elapsed time from your decision to sellable stock, which includes acknowledgement, shipping and your own receiving.
- Using an annual average for daily sales. Seasonal products spend most of the year at a rate that misrepresents the weeks that matter.
- Forgetting to raise it before a promotion. Ad spend breaks the demand average the reorder point was built from.
- Setting it once. Both inputs move, so a reorder point set eighteen months ago is describing a business you no longer run.
Common questions
What is the reorder point formula?
Average daily sales multiplied by lead time in days, plus safety stock. The safety stock term is what absorbs demand spikes and late deliveries.
Should I use the supplier's quoted lead time?
No. Measure your own. Record the date you sent each purchase order and the date the stock became sellable, and after six orders you have a distribution that beats any quote.
How is a reorder point different from a low stock alert?
The reorder point is the number. The alert is the mechanism that tells you the number has been reached. An alert set to an arbitrary threshold rather than a reorder point fires at the wrong time.
How often should I review it?
Monthly for fast-moving lines and before any promotion. Both inputs, sell-through and lead time, move without telling you.