The reorder point formula is average daily sales × lead time in days + safety stock. The result is the stock level at which you place the next order, so the delivery lands before the shelf is empty. Selling 8 bags of cement a day, with 4-day delivery and 52 bags of safety stock, a shop reorders at 84 bags.
This guide works that number out step by step for one Kampala hardware shop in Uganda shillings. It then fixes the two cases the basic formula misses: ordering on a set day, and imports already on the way.
What Is Reorder Point?
Reorder point is the inventory level that signals it's time to restock. It is the least stock you can hold when you order and still sell normally until the new stock arrives.
Think of it as an early warning set in units. Reaching it means you still have enough to keep selling, or producing, while the order is on its way.
A reorder point tells a business two things:
- When to order more stock or materials from a supplier.
- When to start a new production run, if you make what you sell.
The USAID Logistics Handbook, written for the supply of health clinics, calls the same number the "min". Set one for each product, because each sells at its own pace and comes from its own supplier.
Why Reorder Point Matters
A reorder point replaces the guess about when to order with a number. Order too late and you have a stockout; order too early and your cash sits on the floor as stock.
- It prevents stockouts of the products customers expect you to have.
- It stops early orders that tie up cash and storage space.
- It turns ordering into a routine a staff member can follow without the owner.
- It changes when sales or delivery times change, instead of when someone notices an empty shelf.
The Reorder Point Formula
Reorder point = (average daily usage × average lead time) + safety stock
- Average daily usage: how many units you sell or use a day, counted over days the product was in stock.
- Average lead time: how many days pass between placing an order and having the stock ready to sell.
- Safety stock: extra stock that covers late deliveries and busy days.
The first part, daily usage × lead time, is the lead-time demand: what you expect to sell while you wait. Safety stock covers what you didn't expect.
For example, 10 units a day, a 7-day lead time and 50 units of safety stock give (10 × 7) + 50 = 120 units. When stock falls to 120, you order.
Order later than that and you risk a stockout. Order earlier and you pay higher holding costs on stock you didn't need yet.
How to Calculate Reorder Point (Step-by-Step)
You need three numbers per product: average daily usage, average lead time and safety stock. Here they are for one product, 50 kg bags of cement at a hardware shop in Kampala.
Step 1: Find your average daily usage
Divide the units sold by the days the product was in stock, not by the days in the period. Days at zero pull the average down, and a low average causes the next stockout.
For example, the shop sold 200 bags in the last 30 days, but cement was out for 5 of them. Average daily usage is 200 ÷ 25 = 8 bags, not 200 ÷ 30 = 6.7.
Step 2: Figure out your average lead time
Lead time runs from the day you order to the day the stock can be sold. Take it from your last five deliveries, not from the supplier's promise.
| Order placed | Stock ready to sell | Lead time (days) |
|---|---|---|
| 2 June | 5 June | 3 |
| 16 June | 20 June | 4 |
| 30 June | 3 July | 3 |
| 14 July | 20 July | 6 |
| 28 July | 1 August | 4 |
The average is (3 + 4 + 3 + 6 + 4) ÷ 5 = 4 days, and the longest is 6. Keep both, because the safety stock uses the longest.
Step 3: Set your safety stock
Safety stock covers the days when sales run above average or the truck is late. The next section shows how to calculate it; for the cement it comes to 52 bags.
Step 4: Plug it into the formula
Reorder point = (8 × 4) + 52 = 32 + 52 = 84 bags
Example: what 84 bags means in the store room
For example, when the count falls to 84 bags, the shop orders. Over the next 4 days it expects to sell 32 bags, so the delivery should land with about 52 bags still in the store.
If the truck takes 6 days and every day is as busy as the busiest, the 52 bags just carry the shop through. At UGX 31,000 a bag, that buffer is UGX 1,612,000 of stock.
How to Calculate Safety Stock
Safety stock is the extra inventory you hold for late deliveries and busy days. The simplest formula uses your worst day and your slowest delivery:
Safety stock = (max daily usage × max lead time) − (average daily usage × average lead time)
- Max daily usage: the most units sold or used in one day recently.
- Max lead time: the longest a delivery has taken.
- Average daily usage and average lead time: from steps 1 and 2.
Take the 120-unit product above, with a busiest day of 15 and a longest delivery of 10 days. Safety stock is (15 × 10) − (10 × 7) = 150 − 70 = 80 units. Its reorder point rises from 120 to 70 + 80 = 150.
Example: safety stock for the cement
For example, the cement's busiest day last month was 14 bags, and its longest delivery took 6 days. Safety stock is (14 × 6) − (8 × 4) = 84 − 32 = 52 bags.
Now look at the reorder point: 32 + 52 = 84, which is 14 × 6. This method always sets the reorder point at your busiest day times your slowest delivery, as 15 × 10 = 150 did above.
That suits products you must never run out of, and the rainy season. For the rest it holds more cash than needed.
The USAID handbook's lighter rule sets safety stock at no less than half the days between orders. A shop that orders weekly holds 3.5 × 8 = 28 bags, UGX 868,000 of buffer instead of UGX 1,612,000.
The guide to avoiding overstocking and stockouts compares both with a statistical method, for one product side by side.
Two cases where the basic formula fails
The basic formula assumes you can order on any day and that nothing is already on the way. Two common situations break those assumptions.
You can only order on a set day
If the distributor takes orders only on Mondays, a Monday count just above 84 may not last until next Monday's order arrives. Add a week of sales to the trigger: 84 + (8 × 7) = 140 bags.
On Monday, order if stock is at or below 140. The USAID handbook calls this a "standard" max-min system and adds the review period to the min for the same reason.
An order is already on the way
When delivery takes longer than the gap between orders, the next order is due before the last one lands. Compare the reorder point with stock on hand plus stock on order, or you will order twice.
For example, the same shop imports floor tiles through Mombasa. They sell 6 boxes a day, take 45 days from order to shelf, and are ordered every month.
With 15 days of safety stock (90 boxes), the reorder point is (6 × 45) + 90 = 360 boxes. The shop holds 150 boxes, and 200 more are on the road from Mombasa.
150 + 200 = 350, below 360, so the shop orders now. Counting only the 150 in the shop would call for an order every day. The guide to in-transit inventory covers who carries the risk on goods still on the road.
Reorder Point vs. Reorder Quantity
The reorder point tells you when to order; the reorder quantity tells you how much. Many pages give "average daily usage × lead time" for both, and that is wrong for the quantity.
- Reorder point = (average daily usage × lead time) + safety stock. It decides when.
- Reorder quantity = enough to last until the delivery after this one. It decides how much.
An order of exactly the lead-time demand is used up while you wait for it. Stock is back at the reorder point on the day it lands.
Example: why 32 bags is the wrong order
For example, the cement shop orders 8 × 4 = 32 bags at 84. Four days later 32 bags have sold and the delivery lands on 52. Stock is back at 84, so the shop must reorder that same day.
To order every two weeks instead, the order covers 14 days of sales: 8 × 14 = 112 bags. The reorder quantity guide shows how to set it, round it to the pack and fit it to your cash.
EOQ and Reorder Point (Optional Advanced Tip)
EOQ, the economic order quantity, is one way to set how much to order; it doesn't change when. It finds the order size at which the yearly cost of placing orders equals the yearly cost of holding stock.
EOQ = √(2 × annual demand × cost per order ÷ holding cost per unit per year)
For example, the cement sells about 2,880 bags a year (8 a day, 360 days). Each delivery costs UGX 60,000 in truck hire, and holding a bag costs about 40% of its UGX 31,000 cost, or UGX 12,400 a year.
EOQ = √(2 × 2,880 × 60,000 ÷ 12,400) = about 167 bags, roughly three weeks of sales. The reorder point stays at 84, because EOQ sets the order size, not the trigger.
EOQ assumes steady demand and a fixed cost per order, as the Corporate Finance Institute's EOQ guide sets out. Used with a reorder point, it gives an efficient inventory system: fewer, better-sized orders, placed on time. The EOQ guide works the formula in full.
When to Update Your Reorder Point
Review reorder points every 3 to 4 months, and straight away when one of four things changes.
- Demand rises or falls. A building site opens nearby, or a competitor opens across the road.
- Delivery takes longer or shorter. A new supplier, a new route or a border delay changes the lead time.
- The season changes. In the rains, use the longest delivery you have seen; the USAID handbook says "when in doubt, assume your lead time is longer".
- The way you order changes. Moving from any day to a set day, or from local buying to importing, needs the cases above.
A product that keeps hitting zero needs a higher reorder point. One whose delivery always lands with plenty left needs a lower one.
Automating reorder points in ArmPOS
ArmPOS automates the watching, not the ordering: it warns you when a product reaches its reorder point, and you place the order. Six steps set it up.
- Find average daily usage. Reports › Products report for the last 30 days gives each product's quantity sold; divide it by the days the product had stock (Stock reports).
- Measure lead time. Record each order as a purchase with status ordered, and edit it to received when the goods arrive (Record a purchase). Add the arrival date to its Note, and the two dates become your lead-time log.
- Enter the reorder point as the Stock Alert. Edit the product and type it in Stock Alert, in the Inventory part: 84 for the cement (Add your first products).
- Set it in the unit you stock. Stock is kept in the product's own unit, even when you buy by the box, so the alert uses that unit too. A Purchase Unit built on it, such as a box of 12, handles the buying (Categories, brands and units).
- Turn on the alert. In My notifications, switch on "Stock fell below its alert level" by bell, email or push. ArmPOS checks stock every 10 minutes (Get alerts on your phone).
- Order from Product Quantity Alerts. It lists every product at or below its Stock Alert, by warehouse (Reports to check every day). First check Purchases › All Purchases for an order still marked ordered: that stock is on the way, and the alert doesn't count it.
For a set ordering day, enter the higher trigger, 140 for the cement, and read the alerts list on that day. The steps are the same for a shop in Uganda or in South Africa.
Why it helps
- The alert fires on the stock level, so nobody has to remember to check.
- Each product has its own trigger, instead of one guess for the whole shop.
- The alerts list is the day's order list, by warehouse, for whoever does the buying.
Frequently asked questions
What is the reorder point formula?
Reorder point = (average daily usage × average lead time) + safety stock. For 8 units a day, a 4-day lead time and 52 units of safety stock, it is 84 units.
Is the reorder point the same as safety stock?
No. Safety stock is the buffer inside the reorder point; the reorder point adds what you expect to sell while you wait for the delivery.
What is the reorder point without safety stock?
It is the lead-time demand alone, average daily usage × lead time. Any late delivery or busy day then causes a stockout, so keep it for products you can afford to miss.
How often should I change my reorder points?
Every 3 to 4 months, and whenever sales, a supplier, the season or the way you order changes.
Can the reorder point be higher than the stock I usually hold?
Yes, when deliveries take longer than the gap between orders. Then compare it with stock on hand plus stock already ordered, as in the tiles example.
Work out the reorder point for your ten best sellers this week, starting with a log of their last five deliveries. Create a free ArmPOS account to enter each one as a Stock Alert, so the bell tells you when to order.
