Reorder Point Formula: The Stock Level That Triggers a PO

The shelf still showed 58 lamps. A purchase order for 40 was already on the water. Someone saw 58, compared it with a trigger of 60, and placed a second PO. A reorder point formula is supposed to stop that second buy. It names the inventory position that should trigger the next order, not the moment the shelf looks thin. What is the reorder point formula? Multiply average demand by supplier lead time, then add safety stock. That sum is the reorder point, and you place the PO when inventory position falls to it. The first term is what you expect to sell during the wait. Safety stock covers a fast week or a late truck. How do you calculate a reorder point? Use one SKU and one time unit. This example uses days, and the quantities are an example, not a benchmark. Lamp L-14 sells 8 units a day on average. The supplier takes 6 days from the PO to a receipt you can sell. Safety stock for this lamp is 12 units. Lead-time demand is 8 times 6, which is 48. Add the 12 and the reorder point is 60. Buy when inventory position hits 60. A shelf reading under 60 is not the same test if a truck is already coming. University of Iowa lecture notes describe that trigger as expected demand during lead time plus safety stock. NC State's reorder point tutorial makes the matching point: when demand and lead time are both steady, the trigger is only the demand you expect during the wait. The buffer shows up once one of those moves. Why do days and weeks get mixed up? Demand and lead time have to share a unit. Four sales a day and a 5-week lead time is not 4 times 5. Five weeks is 35 days. Four a day across that wait is 140 units, before any safety stock. The 4 times 5 version equals 20, and it would have you reorder after the warehouse is already empty. If the sheet stores demand by the week, convert lead time into weeks too. A 6-day lead time is 6/7 of a week, not 6 weeks. Do you reorder from the shelf count? No. Use inventory position. That is units on hand, plus units already on order, minus units you have already promised and cannot sell again. On-hand for L-14 is 58. An inbound PO covers 40. Nothing is backordered, so position is 58 plus 40, which is 98. The trigger is 60, so you wait. Ordering because the shelf is under 60 buys a second batch you do not need. What you look at L-14 right now Place a PO? Shelf only 58, and the trigger is 60 Yes, and that is the mistake Inventory position 58 on hand plus 40 inbound = 98 No Promised units pull the other direction. If 10 of those 58 are already allocated to open orders, position is 58 plus 40 minus 10, which is 88. Still above 60. Take the inbound PO out and 58 minus 10 is 48, under 60, and the buy is real. Demand planning in OneChannelAdmin can keep that trigger next to the forecast. On-hand, inbound, and allocated quantities are tracked in inventory management, including a separate position when East and West cannot fill the same order. Promised units on open orders live in order fulfillment. The bin those units actually occupy is warehouse management. When does a fixed reorder point fail? A single number assumes the next 6 days look like the average. Some weeks break that. The week looks like this What to change Demand and lead time stay near the average Keep 60 until the next review A known season sells about double Raise the demand input, then redo demand times lead time The last two receipts took 10 days, not 6 Recalculate with 10 days, or put that slip into safety stock The SKU was at zero for 3 of the last 14 days Do not average those zero days in as if customers wanted nothing I'd review a daily seller about once a month, and I'd review a supplier the day a receipt lands late. A trigger copied from January will keep buying the January rate in July. A promotion changes the demand input for a dated window, not forever. If L-14 sells 20 a day instead of 8 during the promo, lead-time demand is 20 times 6, which is 120. Add the same 12 and the trigger is 132 until the promo ends. Write the end date on the number. The morning after, put 60 back, or the next PO buys the spike for a normal week. What quantity do you order at the reorder point? The trigger says when. It does not say how many. Buying 60 units because the trigger is 60 only refills the signal that told you to act. L-14 sells 8 a day in this example, and you want about 14 days of cover after the receipt. That PO is 8 times 14, which is 112 units. A case pack of 24 rounds 112 up to 120. The 14 days and the case of 24 are a buying policy you choose. They are not part of the reorder point formula. Position is 60 when you send the PO. Add 120 on order and position jumps to 180 while you wait and sales continue. Order only 60 and position sits at 120, so you are back near the trigger in about a week, because 60 units at 8 a day is 7.5 days. That faster cycle can be what you want. It is a separate decision from the moment you buy. Which building does the reorder point watch? East holds 40 of L-14. West holds 18. If East's customers can only be filled from East, compare East's position with 60. Fold in West's 18 and the company total looks healthier while East is already late. Run the formula for each building that ships the order. A transfer from West has its own lead time. Four days on a truck between buildings is not the supplier's 6 days, and those units are not in East's bin yet. Clock lead time from the PO you send to the moment the unit is sellable in the bin. A carrier scan at the door is early when the carton sits on the dock for two more days. Those two days belong inside the 6. Leave them out and the trigger fires after you are already short. How do you set the first reorder point? One SKU is enough for the first pass. The rest of the catalog can wait until this number survives a week of real orders. Pick days or weeks, and use that unit for both demand and lead time. Average recent sales. Leave out days you were at zero when those zeros were stockouts, not quiet demand. Write lead time from the PO to stock you can sell, in that same unit. Add safety stock in units. If that buffer is still a guess, set it before you trust the trigger. Multiply average demand by lead time, then add safety stock. Compare the result with inventory position, not a shelf photo. Buy when position falls to the reorder point. Stop if step 2 used a week and step 3 used a day. The PO will be early or late, and the arithmetic will not be why. Questions about the reorder point formula What is the reorder point formula? Average demand during lead time, plus safety stock. In days, that is average daily demand times lead time in days, plus the buffer. You buy when inventory position reaches that number. Is safety stock part of the reorder point? Yes. Safety stock sits on top of the units you expect to sell during the wait. Without it, the trigger only covers an average lead time, and a fast week can empty the shelf before the truck arrives. Should you reorder from the shelf count? No. Add inbound purchase orders and subtract units already promised. A shelf under the reorder point can still be fine when a PO is already on the way. What if demand is daily and lead time is in weeks? Convert one of them before you multiply. Five weeks is 35 days. Daily demand times 5, with the 5 left in weeks, is not demand during the wait. How often should you recalculate a reorder point? Recalculate when the demand rate or the lead time changes. A supplier who moved from 6 days to 10 has already made the old trigger late. A once-a-year refresh misses that slip. OneChannelAdmin Team writes about reorder points, warehouse quantities, and the purchase orders that restock them.