Frequently asked questions
What is a reorder point?
It is the stock level at which you should place a new order so the goods arrive before you run out.
What is the reorder point formula?
Reorder point = average daily demand × lead time in days + safety stock. With 20 units a day, 7 days of lead time and 30 units of safety stock, it is 170 units.
What is safety stock?
Extra stock kept as a buffer against demand spikes or late deliveries. A simple method is to keep a few extra days of average demand.
What does lead time include?
The time from placing the order until the goods are ready to sell: supplier processing, production, shipping, customs and receiving.
How do I work out average daily demand?
Divide units sold over a recent period by the number of days. Exclude days with stockouts or one-off promotions, or adjust for them.
What is the difference between reorder point and reorder quantity?
The reorder point says when to order. The reorder quantity, often found with EOQ, says how much to order.
How do I handle seasonal demand?
Recalculate the reorder point for each season using seasonal daily demand, since a single yearly average will be too low in peak periods.
What if I have several suppliers?
Use the lead time of the supplier you actually order from for each item, or use the longest likely lead time to stay safe.
What happens if the reorder point is too high or too low?
Too high ties up cash in stock. Too low causes stockouts and lost sales. Aim for a balance that fits your service level.
How often should I update it?
Whenever demand or lead times change. For fast-selling items, review it monthly.
Should weekends be counted in daily demand?
Count the days you actually sell and the days your supplier actually works, and be consistent. If demand is per calendar day, express lead time in calendar days too.
How do I add safety stock to the formula?
Reorder point = average daily demand × lead time + safety stock. For example, 20 units a day × 7 days + 30 safety stock = 170 units.
How do I choose safety stock?
Start with a few extra days of demand, or base it on how much your demand and lead time vary. A higher service level needs more safety stock, and more cash tied up.
What if lead time keeps changing?
Use the longer typical lead time or add safety stock, and track actual delivery times by supplier so you can update the figure with real data.
Is the reorder point the same for every product?
No. Each product has its own demand and lead time, so calculate it per product, starting with your best sellers.