Reorder Point Formula: Calculate When to Replenish Inventory

Average daily demand should use a representative sales period and exclude obvious data errors. Lead time runs from an actionable purchase decision through supplier processing, transit, receiving, and the point at which inventory becomes available for sale.

Safety stock absorbs reasonable variation in demand and lead time. It should reflect the cost of stocking out, supplier reliability, seasonality, and the accuracy of your underlying inventory data.

A part sells 4 units per day, the supplier normally takes 18 days from order to usable receipt, and the buyer keeps 20 units of safety stock.

The purchase decision is triggered when inventory position reaches 92 units—not necessarily when on-hand quantity reaches 92.

On-hand inventory alone can produce unnecessary purchase orders when sufficient stock is already incoming. It can also delay buying when many units are reserved for accepted orders. Inventory position accounts for both.

Only include incoming stock that is genuinely expected and not cancelled, rejected, or indefinitely delayed. Late purchase orders should be visible to the buyer instead of making the replenishment position look healthier than it is.

The reorder point tells you when to buy, not how much. A simple target-stock approach orders enough to cover a desired number of future days, then subtracts the current inventory position. Buyers should also consider supplier minimums, case packs, available cash, storage capacity, seasonality, and expected promotions.