Reorder Point

The reorder point (ROP) is the stock level that triggers a new replenishment order. When inventory falls to the reorder point, it means an order needs to be placed immediately in order to receive goods before the current stock runs out. For businesses that hold physical inventory - branded merchandise distributors, electrical component suppliers, and businesses with a van stock - setting accurate reorder points prevents stockouts without tying up excess capital in overstocked goods.

The Reorder Point Formula

The standard formula is: Reorder Point = (Average daily usage x Supplier lead time) + Safety stock.

If a business uses 20 units per day, the supplier takes 5 working days to deliver, and the business wants 50 units as a safety stock buffer: ROP = (20 x 5) + 50 = 150 units. When stock falls to 150 units, the next purchase order should be placed.

Safety stock accounts for variability - in supplier delivery times, demand spikes, or both. Without it, any delay from the supplier risks a stockout during the lead time window. For businesses with a single reliable supplier and consistent demand, safety stock can be minimal. For businesses with multiple suppliers and seasonal demand peaks, it needs to reflect actual variability.

When to Review Reorder Points

Reorder points are not set-and-forget. Recalculate whenever supplier lead times change, when a product becomes seasonal, or when a supplier's reliability shifts. Businesses with a wide product catalogue find it more practical to flag automatic review triggers in their inventory system rather than manually recalculating every SKU at regular intervals. For slow-moving or very low-demand items, a simpler minimum stock level may be more practical than a formally calculated ROP.