The Reorder Point Formula: How to Calculate It (With a Worked Example)

Running out of a product costs you a sale. Ordering too early ties up cash you could have spent somewhere else. The reorder point is the number that keeps you out of both ditches, and most people either guess it or ignore it.

Here is the formula, what each part means, and a worked example you can copy for your own products.

What a reorder point actually is

Your reorder point is the stock level that triggers a new order. When a product drops to that number, you place the purchase order. Not before, not after.

The whole job of a reorder point is to cover the gap between "I ordered more" and "the new stock arrives." That gap is your lead time, and it is where stockouts are born.

The reorder point formula

Here it is:

Reorder point = (average daily usage x lead time in days) + safety stock

Three inputs, that is it:

• Average daily usage. How many units you sell or consume per day, on average.
• Lead time in days. How long it takes from placing an order to having it on the shelf.
• Safety stock. A buffer for the days demand runs hot or the supplier runs late.

The first part, usage times lead time, is your expected demand during the wait. Safety stock is the cushion so a normal bad week does not empty you out.

A worked example

Say you sell a phone case.

• You sell about 20 units a day.
• Your supplier takes 10 days to deliver a restock.
• You keep 50 units of safety stock.

Plug it in:

Reorder point = (20 x 10) + 50
Reorder point = 200 + 50
Reorder point = 250 units

So the moment that phone case hits 250 units, you order more. By the time the shipment lands 10 days later, you have burned through roughly 200 units and you are sitting near your 50-unit buffer, ready for the new stock.

How to set your safety stock

Safety stock is the part people fudge. A simple, honest way to start: take your longest realistic lead time, subtract your average lead time, and multiply by your average daily usage.

Safety stock = (max lead time - average lead time) x average daily usage

If that phone-case supplier usually takes 10 days but has hit 14 in the past:

Safety stock = (14 - 10) x 20 = 80 units

That is more conservative than the 50 we used above, and it protects you specifically against the supplier being slow. Tune it to how much a stockout actually hurts. High-margin, hard-to-replace products deserve a bigger cushion than cheap commodity stock.

Reorder point vs reorder quantity

These get mixed up constantly, so to be clear:

• The reorder point tells you when to order.
• The reorder quantity tells you how much to order.

They are different numbers doing different jobs. This post is about the "when." Your "how much" usually comes from economic order quantity (EOQ) or just a sensible batch size that balances shipping costs against holding costs.

Do this per product, per location

Two things wreck a single blanket reorder point:

1. Products are not the same. A fast mover and a slow mover with the same reorder point means you overstock one and stock out the other.
2. Locations are not the same. If you hold stock in more than one warehouse, each one has its own usage and its own lead time, so each one needs its own reorder point.

This is exactly where a spreadsheet starts to fall apart. It works for five products in one place. It does not work for five hundred products across three locations that all restock at different speeds.

Stop calculating this by hand

Once you have more than a handful of SKUs, you should not be doing this math manually. Good inventory software watches usage, holds the reorder point per product per location, and tells you what to reorder before you run out.

Inventoros does this out of the box, tracks stock across locations, and it is open source, so you host it yourself and own the data. If you want to get it running, the install guides walk through cPanel, a VPS, and Docker.

FAQ

How often should I recalculate my reorder point? Whenever your usage or lead times shift meaningfully. For most products, a monthly review is plenty. For seasonal items, recalculate ahead of the season, not during it.

What if my lead time is unpredictable? Lean on safety stock. The more your lead time bounces around, the bigger your buffer needs to be. The safety stock formula above uses your worst realistic lead time for exactly this reason.

Does the reorder point include stock already on order? The trigger is based on stock on hand. But before you place a fresh order, check what is already inbound so you do not double-order. Software that tracks open purchase orders handles this for you.

What units should I use? Keep everything in the same time unit. If usage is per day, lead time is in days. Per week, then both in weeks. Mixing them is the most common way this formula goes wrong.