Reorder Point

The reorder point (ROP) is the specific inventory quantity that triggers a replenishment order. When stock levels fall to this point, it’s time to order more to ensure products arrive before inventory runs out—accounting for supplier lead time and demand variability.

Reorder Point Formula

Basic Formula

Reorder Point = (Average Daily Sales × Lead Time) + Safety Stock

Example:
Daily sales: 10 units
Lead time: 7 days
Safety stock: 20 units

ROP = (10 × 7) + 20 = 90 units

When inventory hits 90 units, place a new order.

Why Each Component Matters

Understanding the Components

Average Daily Sales

• Historical sales data
• Seasonal adjustments
• Trend consideration
• By SKU or category

Lead Time

• Order processing time
• Supplier production time
• Shipping/transit time
• Receiving and stocking time

Safety Stock

• Buffer for uncertainty
• Demand spikes
• Supply delays
• Desired service level

Reorder Point Example

Product: Widget A

Data:
- Average daily sales: 25 units
- Lead time: 14 days
- Safety stock: 50 units (calculated separately)

Reorder Point = (25 × 14) + 50
             = 350 + 50
             = 400 units

Action: Order more when inventory reaches 400 units

Visual Timeline

Day 0:  Inventory at 400 (ROP) → Place Order
Day 1:  Inventory at 375 (selling 25/day)
Day 7:  Inventory at 225
Day 14: Inventory at 50 (safety stock)
        New shipment arrives!
        Inventory replenished

Setting Accurate Reorder Points

Data Requirements

• Historical sales data
• Lead time records
• Demand variability
• Supplier reliability
• Seasonal patterns

Calculation Steps

1. Determine average daily demand
2. Measure lead time accurately
3. Calculate safety stock
4. Apply the formula
5. Validate with historical data
6. Monitor and adjust

Reorder Point Variations

For Variable Demand

ROP = (Max Daily Sales × Max Lead Time) + Safety Stock

More conservative for:
- New products
- Volatile demand
- Unreliable suppliers

For Seasonal Products

Seasonal ROP:
- Higher ROP for peak season
- Lower ROP for off-season
- Adjust monthly or quarterly

For Fast-Moving Items

Consider weekly review:
- More frequent recalculation
- Tighter safety stock
- Faster response to changes

Reorder Point vs. Related Concepts

Common Reorder Point Mistakes

Setting ROP Too Low

• Stockouts occur
• Lost sales
• Customer dissatisfaction
• Rush order costs

Setting ROP Too High

• Excess inventory
• Tied up capital
• Storage costs
• Risk of obsolescence

Not Updating Regularly

• Demand changes
• Lead time changes
• Becomes inaccurate
• Review quarterly minimum

Automating Reorder Points

Inventory Management Software

• Calculates ROP automatically
• Updates based on actual sales
• Considers seasonality
• Alerts when ROP reached

Benefits of Automation

• Real-time accuracy
• Less manual work
• Faster response
• Consistent process

Reorder Point by Industry

E-Commerce

• SKU-level ROP
• Fast-moving focus
• API integrations
• Real-time updates

Retail

• Store-level ROP
• Distribution center ROP
• Omnichannel consideration
• Seasonal heavy

Manufacturing

• Raw material ROP
• Component-level tracking
• Production schedule tied
• Longer lead times

Monitoring Reorder Points

Key Metrics

Review Frequency

• Fast movers: Weekly
• Regular items: Monthly
• Slow movers: Quarterly
• After major changes: Immediately

Optimizing Reorder Points

Continuous Improvement

1. Track actual vs. predicted demand
2. Monitor actual lead times
3. Analyze stockout causes
4. Adjust safety stock
5. Refine calculations
6. Test changes carefully