A reorder point is the inventory position at which a replenishment order should be triggered. It is designed to cover expected demand during replenishment lead time and may include safety stock for uncertainty. The calculation must use consistent time units and the relevant inventory-position definition.
How is reorder point calculated?
A common formula is reorder point = average demand during lead time + safety stock.
Illustrative reorder point calculation
| Input or result | Value | Calculation |
|---|---|---|
| Average daily demand | 40 units | Illustrative historical average |
| Lead time | 12 days | Order to usable receipt |
| Lead-time demand | 480 units | 40 × 12 |
| Safety stock | 120 units | Illustrative buffer |
| Reorder point | 600 units | 480 + 120 |
The illustrative rule triggers replenishment when inventory position reaches 600 units. It does not specify the order quantity.
Which inventory figure should trigger the order?
Many systems use inventory position: on-hand plus on-order minus committed or backordered units. Document the chosen definition so the same stock is not counted twice.
What assumptions affect the result?
Demand variability, supplier lead-time variability, review frequency, seasonality, minimum order quantities and receiving delays can all change the appropriate threshold.
When should it be recalculated?
Review after material changes in demand, lead time, service target or supplier performance. Monitor stockouts and excess inventory to test whether the assumptions remain useful.
