What Is a Reorder Point?
A reorder point (ROP) is the inventory level at which you should place a new purchase order with your supplier. When your on-hand stock drops to or below this number, it's time to reorder. The goal is simple: have enough stock to cover demand while your next shipment is in transit, without holding excess inventory that ties up working capital.
The Reorder Point Formula
The standard reorder point formula is:
Reorder Point = (Average Daily Sales x Lead Time) + Safety Stock
Here's how each piece works:
- Average Daily Sales - Your typical daily unit volume for the SKU
- Lead Time - The number of days between placing an order and receiving it
- Safety Stock - Extra buffer units to protect against demand spikes or supplier delays
Worked Example
Say you sell 15 units per day of a product. Your supplier takes 14 days to deliver. You keep 50 units of safety stock as a buffer.
- Lead Time Demand = 15 units/day x 14 days = 210 units
- Safety Stock = 50 units
- Reorder Point = 210 + 50 = 260 units
When your inventory hits 260 units, place your next order. The 210 units cover the 14 days until the shipment arrives, and the 50-unit buffer protects you if demand runs higher than expected or if the supplier ships a day or two late.
Reorder Points vs. Cadence-Based Ordering
There are two main approaches to deciding when to reorder:
- Reorder point (ROP) - Order when stock hits a specific level. Best for SKUs with steady demand and reliable lead times. You always order at the same inventory level, but the timing varies.
- Cadence-based (periodic review) - Order on a fixed schedule (e.g., every Monday or the first of each month). Best when you consolidate orders across many SKUs from the same supplier to reduce shipping costs. The order quantity varies each cycle.
Many sellers use a hybrid: cadence-based ordering for routine replenishment, with reorder point alerts as a safety net to catch SKUs that sell faster than expected.
Common Mistakes to Avoid
- Ignoring lead time variability - If your supplier sometimes takes 21 days instead of 14, your reorder point needs to account for the worst case, not just the average. Build this uncertainty into your safety stock calculation.
- Not updating as demand changes - A reorder point calculated six months ago may be dangerously wrong today. Seasonal shifts, promotions, and market changes all affect daily sales. Review your reorder points at least monthly.
- Using the same reorder point for every SKU - Each product has different demand patterns, lead times, and margin profiles. A one-size-fits-all reorder point leads to stockouts on fast movers and excess inventory on slow movers.
- Forgetting about order quantity - Your reorder point tells youwhen to order, but you also need to decide how much to order. Factor in minimum order quantities, container sizes, and how many days of stock you want the new shipment to cover.
Next Steps
Once you've calculated your reorder points, put them to work:
- Automate purchase orders - Set up alerts that fire when inventory crosses your reorder point
- Calculate safety stock - Get the right buffer level for each SKU
- Read our full guide - Deep dive into reorder point strategies for multi-channel sellers