What is a reorder point?
A reorder point (ROP) is the stock level at which a new purchase order should be placed so that the delivery arrives before stock runs out. It is usually average daily usage multiplied by the supplier's lead time, plus a safety stock.
Order too early and cash sits on the shelf. Order too late and work stops while you wait for a delivery. The reorder point is the level at which you place the next order so that it lands just before you'd otherwise run out.
The formula
Reorder point = average daily usage × lead time in days + safety stock
Lead time is the number of days between placing the order and having the goods ready to use, including approval time on your side, not just the supplier's delivery time. Safety stock is the extra you keep for days when usage is higher or the delivery is late.
A worked example
A construction site uses about 40 bags of cement a day. From raising the request to the truck arriving usually takes 5 days. The site keeps 60 bags as safety stock for heavy pouring days.
Reorder point = 40 × 5 + 60 = 260 bags. When stock falls to 260, the next order goes out. If the supplier gets slower and lead time becomes 7 days, the reorder point rises to 340.
Choosing safety stock
- If usage and delivery are steady, a few days of usage is often enough.
- If either varies a lot, hold more, or work it out from how far usage and lead time have swung in the past.
- For cheap items that would stop work if missing, err on the high side. For expensive or perishable items, keep it tight.
Why reorder points drift
A reorder point is only as good as the numbers behind it. Usage changes with the season or a new project, suppliers change, and approval time creeps up. Points that were set once and never revisited are a common reason for both stockouts and overstock. That's why some tools work from days of cover based on recent usage instead. Procupy Shelf, for example, calculates days of stock left from actual usage and warns you as that number drops, so there's no reorder level to maintain for each item.
Frequently asked questions
What is the formula for reorder point?
Reorder point = average daily usage × lead time in days + safety stock. For example, 40 units a day with a 5-day lead time and 60 units of safety stock gives a reorder point of 260.
What is the difference between reorder point and safety stock?
Safety stock is the buffer you keep for surprises. The reorder point is the level at which you order again, and it includes the safety stock plus the stock you'll use while waiting for the delivery.
What is the difference between reorder point and reorder quantity?
The reorder point says when to order. The reorder quantity says how much to order each time, which depends on usage, price breaks, storage space and how often you want to order.