What is a reorder point?
A reorder point is the inventory level at which you should place a new order with your supplier. When your stock drops to this number, it is time to reorder. If you wait longer, you risk running out before the new shipment arrives.
The concept is straightforward, but most businesses either guess at their reorder points or skip them entirely. Both approaches cost money: stockouts lose sales, and overordering ties up cash.
The reorder point formula
Reorder Point = (Average Daily Usage x Lead Time in Days) + Safety Stock
Each component matters:
Average daily usage is how many units you sell or consume per day. Look at the last 30-90 days of sales data for the most accurate number. If you sell 10 units per day on average, that is your daily usage.
Lead time is how many days it takes from placing an order to receiving it. If your supplier ships in 5 business days and transit takes 2 days, your lead time is 7 days.
Safety stock is your buffer against variability. Demand spikes and shipping delays happen. Safety stock prevents a stockout when they do.
Worked example
You sell 8 units per day of a product. Your supplier delivers in 10 days. You want 3 days of safety stock.
- Average daily usage: 8 units
- Lead time: 10 days
- Safety stock: 8 units x 3 days = 24 units
- Reorder point: (8 x 10) + 24 = 104 units
When your stock hits 104 units, place the order. The 80 units cover the 10-day lead time, and the 24 units protect against unexpected demand or delays.
How to calculate safety stock
Stockria in action — Generate purchase orders from your low-stock list.
The simplest approach: multiply your average daily usage by the number of days of buffer you want. For stable demand, 3-5 days works. For seasonal or unpredictable items, use 7-14 days.
A more precise method uses the standard deviation of your daily demand, but for most small businesses, the simple approach works well enough. Perfect is the enemy of good when it comes to safety stock.
Setting reorder points in Stockria
In Stockria, you set a reorder point for each item. When stock drops to that level, you get an alert. You can also set reorder points per location, so Store A gets an alert even if the warehouse is fully stocked.
The alert tells you what to order and how much. From there, you can create a purchase order directly. No spreadsheet, no mental math, no forgotten reorders.
Common mistakes
Using the same reorder point for every item. A fast-moving item needs a higher reorder point than a slow-moving one. Calculate each item individually.
Ignoring lead time changes. If your supplier's lead time increased from 7 to 14 days, your reorder points need to double. Review quarterly.
Setting it and forgetting it. Demand changes with seasons, trends, and growth. Revisit reorder points every quarter at minimum.
The math is simple. The discipline of actually using it is what separates businesses with reliable stock from those constantly scrambling.