Reorder Point

The reorder point is the inventory level at which you should place a new order so you do not run out before the replacement stock arrives. It works because if you consume d units each day and the supplier needs L days to deliver, you need enough stock to cover d × L units of demand during that waiting period. This basic version assumes demand and lead time are steady and no extra safety stock is included.

Use this formula when planning inventory for items that are replenished after a delay, such as retail products, spare parts, or raw materials. It is useful whenever you need to know the exact stock level that should trigger a reorder.

• Using weekly demand with lead time in days without converting the units first
• Forgetting that this basic formula does not include safety stock for uncertainty
• Placing the order when inventory reaches zero instead of when it reaches the reorder point