Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A reorder point set from average demand alone runs out during any month that's busier than average, because the point is supposed to cover demand during the lead time it takes a new order to actually arrive. Average demand times average lead time leaves no room at all for a demand spike or a delayed shipment during that exposed window.
Before you rely on it
What to check
Confirm the safety-stock component reflects your actual demand variability and supplier reliability, not just a padded guess, since that's the piece doing the real protective work.
The common error
Where people go wrong with inventory reorder point calculator
Setting the reorder point using average demand and average lead time with no safety stock added. Half of all months run above average by definition, and any one of them can trigger a stockout before the next order arrives.
Sensitivity evidence
How annual unit demand changes the reorder point
| Annual unit demand | Reorder point | Average daily demand | Lead-time demand before safety stock |
|---|---|---|---|
| 9,600 | 868.2 | 26.3 | 368.2 |
| 10,800 | 914.2 | 29.6 | 414.2 |
| 12,000worked example | 960.3 | 32.9 | 460.3 |
| 13,200 | 1,006.3 | 36.2 | 506.3 |
| 14,400 | 1,052.3 | 39.5 | 552.3 |
Every input, tested
Which input moves the reorder point most
| Input | Tested from | To | Reorder point at each end | Swing |
|---|---|---|---|---|
| Safety stock | 450 | 550 | 910.3 to 1,010.3 | 100 (10%) |
| Annual unit demand | 10,800 | 13,200 | 914.2 to 1,006.3 | 92.1 (9.6%) |
| Supplier lead time | 13.0 days | 15.0 days | 927.4 to 993.2 | 65.8 (6.8%) |
Two variables at once
Reorder point by annual unit demand and supplier lead time
| Annual unit demand \ Supplier lead time | 11.0 days | 14.0 days | 17.0 days |
|---|---|---|---|
| 9,600 | 789.3 | 868.2 | 947.1 |
| 10,800 | 825.5 | 914.2 | 1,003 |
| 12,000 | 861.6 | 960.3 | 1,058.9 |
| 13,200 | 897.8 | 1,006.3 | 1,114.8 |
| 14,400 | 934 | 1,052.3 | 1,170.7 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Annual unit demand | 12,000 |
| Supplier lead time | 14.0 days |
| Safety stock | 500 |
| Reorder point | 960.3 |
| Average daily demand | 32.9 |
| Lead-time demand before safety stock | 460.3 |
Where the inputs come from
Annual unit demand divided by 365 gives average daily demand. Supplier lead time is the number of days between placing an order and having it on the shelf, using the realistic figure rather than the quoted one, since delays are common. Safety stock is the extra inventory kept for demand or lead-time surprises; it can come from the safety stock calculator or from experience. Use consistent units for demand and lead time.
When the result stops applying
The calculation assumes steady demand, so seasonal or promotional spikes need a higher point at those times. Supplier reliability changes lead time, and a longer delay raises the required stock. It does not decide the order quantity, which is the economic order quantity's role. Items with lumpy demand need a different approach.
What to compare it with
Set the order size with the economic order quantity calculator, and derive the safety stock from a service level with the safety stock calculator. The inventory turnover and carrying cost pages show the cost of holding more. Review slow-moving items separately.
People also ask
Frequently asked questions
What is a reorder point?
The inventory level that triggers a new order, equal to the demand expected during the supplier's lead time plus safety stock.
What happens if lead time doubles?
Lead-time demand doubles, so the reorder point rises sharply. Track supplier performance and update the figure when delivery times change.
Why include safety stock?
It protects against demand higher than average or deliveries later than promised, which would otherwise cause stockouts.