Reorder Point: How to Know Exactly When to Reorder
The reorder point is the stock level at which you should place a new purchase order — not when you run out, not "whenever it feels low," but a specific, calculable number. Get it right and you stop choosing between stockouts and overstocking; get it wrong and you're always doing one or the other.
Businesses that switch from manual reordering to a calculated reorder point typically cut stockouts by 30–40% without increasing average inventory levels.
The formula
Reorder Point = (Average Daily Usage × Lead Time in Days) + Safety Stock. Average daily usage comes from recent sales history, lead time is how long your supplier actually takes to deliver — not what the contract says — and safety stock is the buffer that absorbs demand spikes or supplier delays.
A worked example
Say a SKU sells 12 units a day on average, and your supplier takes 10 days to deliver once you order. That's 120 units consumed during the wait. Add a safety stock of 40 units to cover a bad week or a late shipment, and your reorder point is 160 units — the moment stock hits that number, the purchase order goes out, not before, not after.
Why this gets skipped
Most small businesses reorder when someone notices stock is "getting low," which depends on who's watching that day and how busy they are. The same SKU might get reordered with 200 units left one month and 40 units left the next, purely based on who happened to glance at the shelf.
- The same SKU gets reordered at wildly different stock levels depending on who's watching it
- Purchase orders go out reactively, right after a stockout, instead of before one
- Fast-moving and slow-moving SKUs use the same "reorder when low" instinct despite needing very different buffers
- Lead times are assumed from the supplier's quote instead of measured from actual past deliveries
A reorder point turns "I think we're getting low" into a number a computer — or a junior employee — can act on without guessing.
Getting the inputs right
The formula is simple; the inputs are where most people go wrong. Average daily usage should come from a recent, representative window — not last year's number if demand has shifted. Lead time should be the actual average of your last several orders, including the slow ones, not the supplier's best-case promise.
Setting it up properly
Average your last 5–10 orders for that supplier, including any that ran late.
A SKU with wildly swinging sales needs more buffer than a steady one, even at the same volume.
A new supplier, a seasonal shift, or a demand spike should trigger a recalculation, not a one-time setup you forget about.
Key takeaways
Reorder point = (average daily usage × lead time) + safety stock. Use real, measured lead times and revisit the number whenever demand or supplier performance shifts.
