Reorder Point Explainer
A reorder point is the inventory position at which replenishment should be triggered. In a simple stable setting, it equals expected demand during replenishment lead time plus safety stock. The goal is for new supply to arrive before available inventory is exhausted.
Inventory position usually includes on-hand stock plus confirmed orders and may subtract backorders or allocations. Using on-hand quantity alone can create duplicate orders. Demand rate and lead time must use compatible units, such as units per day multiplied by days.
Safety stock protects against demand and lead-time variability at a chosen service level. Higher protection reduces stockout risk but raises holding cost and obsolescence exposure. Perishable, seasonal, intermittent, or capacity-constrained items may need specialized methods.
A reorder point is a planning parameter, not a permanent fact. Review actual demand, supplier performance, order frequency, substitutions, minimum quantities, and service goals. Promotions and disruptions may require temporary overrides with documented expiration rather than silently changing the baseline.
Estimate how much demand will occur before replenishment arrives.
Use consistent time units and realistic lead time.
Safety stock protects the chosen service level from variability.
More buffer trades working capital for fewer stockouts.
Include confirmed inbound supply and subtract commitments where appropriate.
On-hand stock alone can trigger the wrong order.
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