Reorder point

Reorder point formula

Reorder point = (average daily demand × lead time in days) + safety stock.

For example, olive oil OIL-008 sells 40 bottles a day on average, the supplier takes 10 days to deliver, and you hold 120 bottles of safety stock. Lead-time demand is 40 × 10 = 400, so the reorder point is 400 + 120 = 520. When stock drops to 520 bottles, you raise a purchase order. If demand stays average, you sell 400 while waiting and the delivery lands with about 120 left. The reorder point calculator works it out for you.

Which stock to compare against the reorder point

Compare the reorder point to your inventory position, not only the stock on the shelf. Inventory position = on hand + already on order - allocated to open orders or backorders.

If you only look at shelf stock, you will raise a second purchase order every day until the first one arrives, because the shelf stays below 520 the whole time. If you ignore allocated stock, a large order waiting to be picked hides the fact that you are already below the trigger.

Reorder point vs min/max replenishment

A reorder point decides when to buy from a supplier. Min/max replenishment inside the warehouse decides when to move stock from reserve racks to a pick face: when the pick face drops to its minimum, top it up to its maximum. The logic is similar, but the lead time is minutes rather than days, and the source is your own reserve stock rather than a supplier. How much to order once the trigger fires is a separate decision, often guided by economic order quantity.

Common reorder point mistakes

Reorder points go stale quietly, and the first sign is usually a stockout.

• Using the supplier's quoted lead time instead of the lead time you actually get.
• Setting one reorder point for the year when demand is seasonal.
• Forgetting that orders must be rounded up to case packs and minimum order quantities.
• Counting held, quarantined or expiring stock as if it were sellable.

How NextStock handles reordering

NextStock's supplier catalog stores supplier SKUs, pack sizes, costs, lead times and minimum order quantities. Replenishment suggestions based on demand and days of cover propose purchases and transfers, and purchase orders go through approval before they are sent to the supplier. See purchasing and replenishment.