What Is Reorder Point? Learn the Formula to Keep Inventory Flowing

What is reorder point? The reorder point is the stock level that tells you exactly when to place a new order. It helps you avoid stockouts, reduce downtime, and keep your supply chain moving.

If you’ve ever run out of materials or missed sales because of delays, knowing your reorder point can fix that. It gives you a clear number—based on how fast you use inventory and how long it takes to restock—that shows the right time to reorder.

In this article, you’ll learn what a reorder point is, how it works, how to calculate it with a simple formula, and how to use it to stay ahead of inventory problems.

 What Is Reorder Point?

Reorder point is the inventory level that signals it’s time to restock. It’s the minimum amount of product or material you should have on hand before placing a new purchase or manufacturing order.

Think of it as your early warning system. Hitting the reorder point means you still have enough stock to keep fulfilling orders or making products while waiting for the new stock to arrive. It helps you avoid stockouts, production stops, and missed sales.

A proper reorder point tells you two things:

1. When to order more materials from your supplier
   
2. When to create a new manufacturing order (MO)
   

By setting clear reorder points, you can keep your stock flowing, reduce the risk of running out, and avoid tying up money in unused inventory.

Why Reorder Point Matters

Having a clear reorder point helps you avoid guessing when to place your next order. Without it, you risk running out of stock, delaying orders, or halting production. That means missed sales, unhappy customers, and wasted time.

The reorder point makes sure you always have enough stock to meet demand while your new order is on the way. It also keeps you from ordering too early and holding more inventory than you need—which increases your carrying costs.

Here’s what a good reorder point helps you do:

• Avoid stockouts that stop production or delay deliveries
  
• Reduce excess stock that ties up your cash
  
• Keep your workflow smooth and predictable
  
• Improve order timing based on real demand and lead times
  

Reorder points keep your business balanced—ordering just enough, just in time.

The Reorder Point Formula

Now that you know what a reorder point is and why it matters, let’s break down how to calculate it.

To find your reorder point, you use this simple formula:

Reorder Point = (Average Daily Usage × Average Lead Time) + Safety Stock

Here’s what each part means:

• Average Daily Usage – How many units you use or sell per day
  
• Average Lead Time – How many days it takes to get new stock after placing an order
  
• Safety Stock – Extra stock you keep on hand to cover unexpected delays or spikes in demand
  

This formula helps you reorder at the right time—so your new stock arrives before the old stock runs out.

Without using this calculation, it’s easy to order too late or too early. Too late means stockouts. Too early means higher holding costs. But with the reorder point formula, you can make smarter, data-based decisions that keep your inventory steady and your operations running smoothly.

How to Calculate Reorder Point (Step-by-Step)

Calculating your reorder point doesn’t have to be complicated. You just need three numbers: your average daily usage, your average lead time, and your safety stock. Here’s how to get it done:

Step 1: Find your average daily usage

Look at your sales or production data. How many units do you sell or use each day, on average?

Step 2: Figure out your average lead time

This is the number of days it takes to receive new stock from your supplier after placing an order.

Step 3: Set your safety stock

This is your backup inventory. It covers unexpected demand or delivery delays.
Use this formula to calculate it:
Safety Stock = (Max Daily Usage × Max Lead Time) – (Average Daily Usage × Average Lead Time)

Step 4: Plug it into the formula

Reorder Point = (Average Daily Usage × Average Lead Time) + Safety Stock

Example:

• Average daily usage = 10 units
  
• Average lead time = 7 days
  
• Safety stock = 50 units
  

Reorder Point = (10 × 7) + 50 = 120 units

Once your stock drops to 120 units, it’s time to place a new order. That gives you enough coverage while waiting for the new inventory to arrive.

How to Calculate Safety Stock

Safety stock is the extra inventory you keep on hand for unexpected situations—like supplier delays or sudden spikes in demand. It’s your backup, not your main supply. You don’t want to use it unless you have to.

To calculate safety stock, use this simple formula:

Safety Stock = (Max Daily Usage × Max Lead Time) – (Average Daily Usage × Average Lead Time)

Here’s what each part means:

• Max Daily Usage – The highest number of units used or sold in a single day
  
• Max Lead Time – The longest time it’s taken for stock to arrive
  
• Average Daily Usage – The typical number of units used or sold per day
  
• Average Lead Time – The usual number of days it takes for delivery
  

Example:

• Max daily usage = 15 units
  
• Max lead time = 10 days
  
• Average daily usage = 10 units
  
• Average lead time = 7 days
  

Safety Stock = (15 × 10) – (10 × 7) = 150 – 70 = 80 units

This means you should always keep 80 extra units in your inventory to handle surprises. Safety stock keeps your operations safe and steady, even when things don’t go as planned.

Reorder Point vs. Reorder Quantity

Reorder point and reorder quantity work together, but they’re not the same thing.

• Reorder point tells you when to place a new order
  
• Reorder quantity tells you how much to order
  

Think of reorder point as the trigger, and reorder quantity as the size of the order that follows.

Reorder Point = (Average Daily Usage × Lead Time) + Safety Stock
This keeps your stock from running out while waiting for the next delivery.

Reorder Quantity = Average Daily Usage × Lead Time
This gives you just enough to cover your needs until the next order.

Example:

• You use 10 units per day
  
• Lead time is 7 days
  
• Safety stock is 50 units
  

Reorder point = (10 × 7) + 50 = 120 units
Reorder quantity = 10 × 7 = 70 units

So, when your stock drops to 120 units, place an order for 70 more. The reorder point protects you from running out, and the reorder quantity helps you restock just enough to stay on track.

EOQ and Reorder Point (Optional Advanced Tip)

Once you’ve nailed your reorder point, the next step is knowing the most cost-effective amount to order. That’s where EOQ, or Economic Order Quantity, comes in.

While the reorder point tells you when to order, EOQ helps you decide how much to order—based on costs, not just usage.

The goal of EOQ is to reduce two things:

• Ordering costs – the cost of placing and receiving orders
  
• Holding costs – the cost of storing unsold inventory
  

Here’s the EOQ formula:

EOQ = √[2 × (Annual Demand × Order Cost) ÷ Holding Cost]

Using EOQ with your reorder point gives you a smarter, more efficient inventory system. You order the right amount at the right time—without overspending or overstocking.

It’s a simple formula that can save your business time, space, and money.

 When to Update Your Reorder Point

Reorder points aren’t set and forget. Review them every 3–4 months to keep your stock levels accurate.

Update your reorder point if:

• Customer demand increases or drops
  
• Suppliers take longer—or shorter—to deliver
  
• Sales shift due to seasons or trends
  

Sticking to outdated reorder points can lead to stockouts or excess inventory. A quick check every few months keeps your system efficient and your shelves balanced.

Automating Reorder Points

Manual tracking takes time and leads to mistakes. Inventory software or ERP systems can handle reorder points for you.

The system monitors stock, checks reorder levels and triggers alerts or orders—automatically.

Why it helps:

• Cuts down on human error
  
• Saves time on stock checks
  
• Gives real-time data for better decisions
  

With automation, you spend less time guessing and more time running your business.

Conclusion

Reorder points help you stay stocked without overstocking. They tell you exactly when to restock, so you avoid running out or tying up cash in unused inventory.

Set your reorder point using your daily usage and lead time. Review it every few months. And if possible, let the software do the tracking for you.

It’s a simple step that keeps your inventory lean, your sales steady, and your team focused.