Reorder Point Formula: When Should You Restock Inventory?
Learn the basic reorder point formula, how lead time affects inventory, and when to add safety stock.
What is a reorder point?
A reorder point is the inventory position at which you should place a replenishment order. Inventory position generally includes on-hand inventory plus on-order inventory minus backorders; the correct trigger depends on your replenishment system.
Basic reorder point formula
Reorder point = average demand during lead time + safety stock. With steady daily demand and a fixed lead time, average demand during lead time = average daily unit demand × lead time in days.
Example: 8 units per day
If a business sells an average of 8 units per day, its supplier takes 7 days to deliver, and it holds 20 units of safety stock, reorder point = (8 × 7) + 20 = 76 units. Under these assumptions, order when inventory position reaches 76 units.
What safety stock does
Safety stock helps absorb variability in demand and delivery time. The right amount depends on service goals, uncertainty, and carrying costs. There is no universally correct safety-stock percentage.
Plan your next order
Use Aldervant’s reorder point calculator to estimate when to replenish. Revisit assumptions as demand and supplier performance change.
Examples are illustrative and use the assumptions stated. Business results vary with actual costs, taxes, and operating conditions.