How to calculate the reorder point, with a step-by-step example.
The reorder point is the stock level at which you should place the order. Get it right and the order arrives just before the product runs out. This guide explains the formula, an example with numbers and how StockAI applies it.
What the reorder point is
It is the amount of stock at which you place a new order. While the supplier takes to deliver you keep selling, so the reorder point has to cover what you will sell during that wait and, on top, a cushion in case sales rise or the supplier is late.
The formula
Demand during lead time is average daily sales times the days the supplier takes. Safety stock is the cushion; how it is computed has its own guide: safety stock.
An example with numbers
The numbers in this example are invented, to illustrate the rule. A product sells 20 units a day on average. The supplier takes 9 days to deliver. The computed safety cushion is 30 units. Today there are 150 units and nothing on its way.
Today’s cover is already below the reorder point, so it is time to order. The suggested quantity is what is missing to cover the lead time plus the cushion.
How StockAI applies it
StockAI computes each product’s reorder point from the demand it forecasts, not a flat historical average, and with the supplier’s real lead time: the one you type on the card at first and, from the third logged reception, the average of how long it really took. If you order at a fixed interval (say, a weekly order), that interval is also added to the time that has to be covered.
The stock signal uses that point as its boundary. In the example above, 7.5 days of cover is more than half the lead time (4.5 days), so it is not PEDIR YA, but it is below 10.5 days: it is PEDIR PRONTO. PEDIR YA appears when cover drops below half a lead time. At the other end, SOBRESTOCK starts from the larger of three lead times of cover and twice the reorder point. These are the factory thresholds and can be configured per company, supplier or category. Everything is in how it is calculated.
Common mistakes when calculating it
- Using the lead time the supplier promises instead of the one it actually meets. If it takes 12 days and says 7, you run out before the order lands.
- Using a whole-year sales average on a seasonal product: in high season the reorder point comes out short.
- Forgetting the cushion: with no safety stock, any better-than-usual week leaves you out of product.
- Ignoring what is already on its way and ordering the same thing twice.
- Using one rule for the whole catalogue: each product has its own variability.
Doing it by hand or letting the system do it
For ten stable products, a spreadsheet is enough. With hundreds or thousands of codes, a different lead time per supplier and changing demand, recalculating everything every week stops being realistic. That is the case StockAI is for, and you can compare both approaches in StockAI vs. Excel.
Frequently asked questions about the reorder point
What is the reorder point formula?
Is the reorder point the same as minimum stock?
How often should it be recalculated?
What does StockAI do when the reorder point is crossed?
And to see the product
Let StockAI compute every product’s reorder point from your history.
Keep reading
- Safety stockWhat safety stock is, the formula with service level, a worked example, and how sales variability and supplier delays change it.
- Demand forecasting for purchasingHow to use demand forecasting to decide purchases: what is forecast, why one method is not enough, how error is measured and how StockAI does it.
- Sales forecasting for distributorsWhat decides a distributor’s purchase is how much it will sell: a sales forecast per product and, from it, what to order, how much and from whom. What to demand and how to choose.
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