What is the reorder point formula?
The reorder point formula answers one question: when should you reorder an item before you run out? It bridges the gap between placing a purchase order (PO) and receiving the shipment, so new stock lands before you sell the last unit. Every reorder point pulls together three inputs: demand, lead time, and a safety buffer.
Key characteristics
- Three inputs: average daily sales (unit demand), lead time (the days between ordering and delivery), and safety stock, a buffer for demand or supply swings that follows its own safety stock formula.
- The equation: Reorder point = (average daily sales x lead time) + safety stock.
- It triggers timing, not quantity: the formula sets when to reorder, while economic order quantity (EOQ) sets how much to order.
- Set it per item, per location: each product carries its own reorder point because demand and lead times differ.
- Not static: revisit each point as seasonality and supplier lead times change, or automate reorder points so the number updates with your data.
Example
Say you run a direct-to-consumer store selling a popular wireless headphone model. You sell 7 units a day, your supplier takes 5 days to deliver, and you hold 35 units of safety stock.
Your reorder point is (7 x 5) + 35 = 70 units. When stock drops to 70, you place a new order.
That trigger matters more than it looks. In global retail, empty shelves are the single largest driver of global retail stockout costs, accounting for $690.9 billion of total inventory distortion, according to IHL Group (2026). Getting the reorder point right is one of the plainest ways to prevent stockouts, and automating reorder points and purchase orders is why Fishbowl users see a 22% decrease in stockouts.
Related terms
FAQ
What is the reorder point formula?
Reorder point = (average daily sales x lead time) + safety stock, and it marks the stock level that signals it is time to order more.
Is the reorder point the same as safety stock?
No. Safety stock is one input inside the formula, while the reorder point is the full trigger level that sits above that buffer.
How often should I update my reorder points?
Revisit them whenever demand or lead times shift meaningfully, such as a seasonal peak or a change of supplier. Among warehouse and distribution operators, average inventory turns fell from 8.2 in 2023 to 6.3 in 2025, per this warehouse operations survey, which shows why regular review pays off.