What is Reorder point?
The reorder point is the inventory level at which a replenishment order should be triggered. It ensures stock arrives before a stockout. A dynamic reorder point reacts to forecast demand, lead time, and variability.
Formula
Reorder point = demand during lead time + safety stock
Practical example
At 50 units daily demand, 20 days lead time, and 200 units safety stock, the reorder point is 1,200 units.
Frequently asked questions
How do you calculate the reorder point?
Reorder point = demand during lead time + safety stock. Example: at 50 units of daily demand, 20 days of lead time, and 200 units of safety stock, the reorder point is 1,200 units. When available stock falls below it, a replenishment order is due.
What is the difference between reorder point and safety stock?
Safety stock is a buffer against demand and lead-time variability. The reorder point is the trigger for replenishment and includes safety stock as one component — plus the expected demand during the lead time.
Why should the reorder point be dynamic?
A static reorder point assumes constant consumption. In e-commerce, campaigns, seasonality, and launches shift demand constantly. A dynamic reorder point is recalculated per SKU from forecast, lead time, and volatility, preventing both stockouts and overstock.
What happens if the reorder point is set too low?
Replenishment triggers too late and goods arrive after the stockout. The result is lost revenue, distorted sales data for future forecasts, and often expensive expedited shipping to close the gap.
What teams should remember
- The reorder point is the inventory level at which a replenishment order should be triggered.
- It ensures stock arrives before a stockout. A dynamic reorder point reacts to forecast demand, lead time, and variability.