Whether you’ve just started a new business or you’ve sold products for years, anyone can benefit from using the reorder point formula. This post will show you what that is, why it’s useful, and which numbers you’ll need to generate a reorder point.
How to calculate your reorder point
The reorder point (ROP) is the minimum stock level a specific product can reach before you’re prompted to order more inventory. But I’m sure you already knew that!
A reorder point is not a static number. It’s based on your own purchase and sales cycles, and it varies on a per-product basis. However, once you have a handle on the patterns of a product, you’re ready to start putting the variables together.
The reorder point formula is daily unit sales multiplied by delivery lead time, with some safety stock for good measure.
The reorder point formula video
If you’re the type who likes to watch instead of read, we’ve created a video version of this post. The examples are a little different, but the formula is exactly the same. Peter covers the reorder point formula in just three minutes:
Calculating average daily unit sales
OK! Back to the post at hand. The first variable is simply the average amount of that product you sell on any given day. Let’s examine the fictional company, Archon Optical, and their Ghost glasses. Here are the sales of the Ghost over the last three months:
If we total those numbers, we get 180 total units sold over the past 90 days.
That means that the average daily sales for the Ghost is 2 per day.
Calculating average delivery lead time
Average delivery lead time is the time it usually takes for product shipments to arrive. You should have a couple of purchase orders on-hand to check the numbers. Delivery times can vary based on the quantity you order (larger orders could take longer to ship). When you place the order also affects the lead time (compare orders during a busy season versus a slow season). There are different ways to calculate this, but a three-month average is a good start.
Here are a few Archon Optical purchase for the last three month of Ghost shipments:
Add the total delivery time (15 days ) and divide it by the number of orders (3 orders). That’s an average lead time of five days for the product to arrive.
In this example the lead time is calculated on the vendor level not at the item level. It does not account for multiple receiving locations and or different lead time per item.
How to calculate safety stock quickly
Safety stock is similar to a reorder point, but it’s a surplus quantity to ensure that you don’t run completely out of stock if there are delays.
When deciding on a safety stock level you’ll want to consider: average daily sales and the daily average that product used in work orders (if applicable). Lead time is also important to safety stock.
We’ll keep things simple by calculating based on two weeks of extra demand (14 days). This number is an estimate based on what we’ve seen from other small businesses. But keep in mind this number will vary. If you’re dealing with a product that has a shelf life, such as food, you should try considering changing safety stock levels to days instead of weeks.
Since the average daily sales for the Ghost are 2 (as calculated earlier on this page), that means the safety stock for Ghost is about 14 x 2 = 28.
[We’ve also written a more detailed article on safety stock, if you’d like to calculate it based on lead-time demand.]
Putting the reorder point formula together
Now that we’ve got all of the Archon Optical numbers down, we’re ready to put together a reorder point for the Ghost.
When the quantity on-hand for Ghost glasses hits 38, Archon Optical knows to place a purchase order for more. Because they’ve built an average delivery lead time into the reorder point, the extra Ghost glasses should arrive before Archon ever dips below the amount of safety stock.
Even if there are production shortages or shipping delays, Archon Optical’s safety stock ensures that they can sell Ghost glasses for two more weeks before they run out of stock.
Set a basic reordering reminder in a spreadsheet
Reorder points are vital to keeping your business running smoothly, but they’ll only work if you’re prepared to reorder on time.
If you’re a spreadsheet user, you can use conditional formatting for the quantity value of specific cells. You can set Excel or Google Sheets so that cells turn red when they hit a reorder point. This will effectively warn you when you need to start on a new purchase order.
Reorder faster with inFlow
Unlike spreadsheets, inFlow was designed specifically for working with inventory. Quantity and reorder point fields are built into the apps. This saves our customers a lot of setup time.
inFlow Cloud has a Reorder Stock window, which identifies which products need reordering, and creates new purchase orders with just one click.
If you’d like to implement reorder points with tailored suggestions for your business, we can help with that too!
inFlow Cloud has a Recommended Reorder Point report that examines your sales data and recommends reorder points for your products. It also factors in goods in transit (GIT), which are products that have been ordered from a vendor but haven’t been received yet.
Whether you’re just starting out with reorder points or fine-tuning them, inFlow Cloud can help! The best part is, using inFlow can help with so much more than just reorder points. inFlow integrates with over 95 different applications such as Shopify, Amazon, and Quickbooks Online to name just a few. If you’re looking to setup a complete barcoding system inFlow can do that too! Read our Ultimate Barcoding Guide to learn everything about barcodes and how you can get started barcoding your business.
It was helpful article
Article Feedback*thanks alot
What is safety stock?
Good question, Amalina. We’ll be writing a more specific article on safety stock in the future, but the quick answer is: it’s the amount of extra stock that you keep on hand to ensure that your business is unaffected by shortages in supply (for example, if your purchase order is delayed by two weeks). It’s like a rainy day fund, but for inventory.
[Update: our safety stock article is now published at https://www.inflowinventory.com/blog/how-to-calculate-your-safety-stock/ ]
Hi, please can you tell the difference between minimum stock level and the safety inventory? If there is and difference whats the essence of knowing the minimum level then? Thank you
Hi Michael, the reorder point basically becomes your minimum stock level, because you’ll want to reorder once you fall *below* the reorder point. So if you had a reorder point of 20 and you reached 18 or 19 pcs on hand, you’d want to reorder. You’d be below your minimum stock level.
Safety stock is calculated as part of that reorder point, the more safety stock you decide on, the higher your reorder point will be.
You could only have 29.54 stock left if someone ordered .46, not .54 as you wrote in the article!
Hi Tom, thanks for pointing this out! Sorry about that — we’ve made the correction in the post.
The following is the consumption of rice in certain hotel.
maximum consumption=6000kg per week.
minimum consumption=4000kg per week.
Reoder period 4-6 weeks
Reorder quantity 30,000kg
ii) Minimum stock level.
iii)Maximum stock level
iv)Average stock level
How can i calculate this?
Hi Boniface! Sorry, this post doesn’t deal with max stock levels, but rather the minimum threshold before you *should* reorder.
If you’re looking for a min/max approach, you might need a different article for this question (I did a quick search, and this one may help: https://www.lokad.com/min-max-inventory-planning-definition).
Its too good and very easy to understand thank u very much for this good efforts dear.
Under my area working for a state agency in South Carolina, I have a main warehouse and four smaller sub-warehouses. The smaller warehouses serve specific facilities for the agency and order FROM the main warehouse.
Can your system operate reorder points for all of the five warehouses?
Sorry for the late reply on this! At present, inFlow’s reordering is company-wide. You can set reorder points for specific products, but reordering would only trigger when you drop below a company-wide stock level of X (not per location).
If I understand you correctly, you’d find it more useful if these sub-warehouses could have their own reorder points. This is something we’re taking into consideration for future updates to inFlow, so I’ve added your vote to the list! If this changes, we’ll make sure to get in touch with you via email to let you know!
Hey Thomas, very nice article. Please ping me back I would like to discuss more about this.
Many thanks..my query is..
where or how was 14 arrived at in determining the safety stock?
Hi Ramon, the 14 days was a simplified estimate based on having two weeks of stock, which is what we’ve seen from other small businesses. However, another way to estimate safety stock is to think of it as a percentage of your lead-time demand. We go into a bit more detail about that in this article: https://www.inflowinventory.com/blog/safety-stock-calculation/
first of all I am really thankfull to you for this detail information.butt my question is that how can we decided to purchase or manufacture quantity for stock(like minimum or maximum level)
The article was extremely good.it was very useful to me….
Regarding safety stock,I have a small doubt ..why could we take up 14 days stock as safety stock,?
EXPLAIN THE ROLES OF JIT AND TQM AND SUPPORTIVE SUPPLIERS RELATIONS PLAY IN MORDEN MANUFACTURING
Hi Talent, thanks for reading! We’ll take those under consideration for future topics on the blog!
Hi Thomas, I would like to set up par levels for a restaurant where the deliveries are made to the restaurant on a daily basis and I do have the historical usage of product for every day of the week. The goal is to have enough product at the store to meet the demand but at the same time not have too much product sitting at the store how do I achieve this?
Hi Charantej, good question!
For reordering, it’s really a balancing act. Since you have the historical usage data already, you can calculate an average daily unit sale and then factor in your lead times — basically following the formula in the article at that point.
One point I didn’t touch on in the article was the safety stock for items with a short shelf life, like food.
Depending on the time of ingredient, it might only last a few days, so you might have to think about a safety stock levels in terms of days (instead of ~ two weeks like the article suggested).
After that it’s really just about watching the low points in your inventory at the end of each day. If you’re constantly running too low on an item by the end of the day, you can increase its safety stock levels.
WHAT IS THE FORMULA FOR EOQ
Hi there! Sorry, we don’t have an article on EOQ at the moment, but I’ll definitely consider it for the future on our blog!
How to determine minimum reorder level for sand.
We don’t have any on-hand experience with reordering sand, but I’d imagine it would be done by volume or by weight, and you can set up units of measure within inFlow: https://www.inflowinventory.com/support/cloud/what-if-i-sell-my-items-in-a-different-unit-than-i-purchase/
Once you’ve set those up, you can set up a reorder point that uses the unit of measure you specify: https://www.inflowinventory.com/support/cloud/is-there-a-way-to-reorder-items-that-are-low-in-stock/
Hi Thomas Wong,
Helpful article. Please describe with example for setting up automatic reminders for reorder points by Excel.
This is new formula. Can be applied this formula for arrivals of tourists?
Hi Vijay, this formula is meant to help you reorder stock of physical goods before you completely run out, it isn’t necessarily meant to be applied to how many tourists might be visiting a place. I think you might have to google for another kind of formula for that, sorry!
There is also a term Goods In Transit(GIT) which is subtracted from this ROL formula but its not here.how can we calculate GIT??
Hi Sanila, sorry about that, this post doesn’t include GIT as part of this formula.
But our software, inFlow Cloud, does track the status of products on order: these are products that have been ordered from a vendor but haven’t been received yet. And once you set your reorder point, inFlow will also take the goods in transit into account when suggesting what to reorder.
it was helpful
We have consumption data and lead time for the product. Now we want to calculate minimum inventory level, Maximum inventory level, and Reorder level.
Hi Mahesh, sorry, this article covers the reorder point (level) specifically. But thank you for the feedback, we’ll consider those other two topics (min/max inventory) for other articles!
Hi. Very Nice Article and very Helpfull (my english not great)
I AM EMPLOYEE IN A COMPANY. THAT HAVE 1000 OF ITEMS
TODAY BOSS QUESTION ME HOW TO A CHECK ON REORDER LEVEL in software that we use. Software have report (Stock Less then reorder level).
But Boss need that how can we check items that come near to reorder level means item reorder level is 500 and he says that when item quantity is near to 600 then u report me about this. how can i do this.
Hi Mustafa, thanks for the feedback!
As for the question: you could set up a spreadsheet cell with conditional formatting that could turn a certain color as you get close to the reorder point, but I’m not aware of any software that does this (including inFlow).
Rather it sounds like your boss might want a reorder point closer to 600 rather than 500, if that’s really the level that he’s worried about. Or the other thing you could tweak is how much you reorder at a time (the reorder quantity). If you keep hitting your reorder point quickly, then maybe the business could try reordering *more* product at a time.
Sorry I couldn’t be more definitive with the response, but I hope that helps!
What is reorder point formula if lead time is more than cycle time?
Hi, great formula.. its helpful
May i know how if I have 3000 different items? is there another way to count the reorder point?
Hi Christy, good question!
We actually have a new report in our software, inFlow Cloud, that helps with this. It can take your sales numbers into account, as well as the lead time, and can suggest reorder points for your products. We’ve got more information on the feature here: https://www.inflowinventory.com/support/cloud/can-inflow-recommend-a-reorder-point-for-my-products/
And if you’d like to try inFlow out for yourself, you can do so for free from here: https://www.inflowinventory.com/signup
Nice article sir.
Wow, that was a great piece of article out there for a grab. I’m glad to have read this. Thanks for the thorough explanation.
Good article but the report used is not available on the desktop version, unless there is an update I am missing.
Hi Gabriel, sorry we missed this one. The Recommended Reorder Point report is a new feature we’ve added to inFlow Cloud for Windows in the past few months. I’m afraid that feature is not present in inFlow On-Premise, but the Reorder Stock window that we mention is available in both versions of our software.
Dear Sir Thomas, This is Eric from Philippines.
1st of all this tool is very helpful for us, but I would like to ask question, How to calculate the quantity to be ordered after reaching the Ordering point?
Hoping for your reply
Hi Erico, the reorder quantity can often be dictated by which vendor you’re buying from. Many vendors can have a minimum order quantity (MOQ), and our software, inFlow Cloud, has a spot specifically so that you can input the reorder quantities.
Very nice explanation. Thank you Thomas.
What type of materials to be considered in min max category.
Hi Thomas. Very nice article. But can you tell me how much should we order for the next batch when we hit the reorder point, as i get confused with other articles in the internet. So after i get to the reorder point how much shall i order?
Our software, inFlow Cloud, can help with how much you should reorder based on your sales and inventory levels.
But if you aren’t using our software yet, a good starting point would probably be to think about reordering to cover X number of days/weeks.
So when you hit your reorder point, you could examine the average daily sales of that product.
Then, as an example, you could use that average and multiply it by 5 to cover another week’s worth of stock, or 10 to cover two weeks of stock.
You’ll need to tweak that number to suit your business, but having a high enough reorder point should keep you from running completely out of stock while you wait for new orders to come in.
Seams that the system uses the Vendor for lead times and not the item being ordered itself?
If I order the same item from 2 different vendors then how does that work?
If I order for different locations how does that work?
That’s a good question and thank you for taking the time to share your thoughts.
You’re correct that our implementation of lead time is at the vendor level and not at the item level, so we cannot currently account for multiple receiving locations or different lead times per item.
We’d like to improve reordering within inFlow in the future, but I’m afraid I don’t have a timeline to share just yet.
I have submitted your feedback to our team along with your email address, so someone from inFlow will get in touch if we have improvements to share down the line.
Got idea about re order
Hi. What if there’s a factory production minimum? How do we factor that in? Thanks!
minimum level is 60
re order level is 100,do i need to place an order?
Hi Lesego, the way we’ve defined the reorder point here is to basically treat it like a minimum level. So once you dip below the reorder point (in your case 100), then that is when you should order more stock.
WHAT IF THE SAFETY STOCK IS IN DAYS LIKE KEEP A 2 DAYS SAFETY STOCK?
I’m a mfgr who used a premier Re-order Point manufacturing software system for many years – MAPICS/IBM – great stuff, can’t say enough about it.
Looking for another system today, but looks like the whole world (mistakenly) has a knee-jerk reaction and blurts out MRP at the drop of a hat. I don’t want an MRP system. OP works just fine. Are you able to recommend any notable such systems on today’s market.
This is also to address the full needs of a small mfg company. Thanks! (good article)
Hi Charlie, I would recommend inFlow Cloud if you do manufacturing and you need to keep an eye on stock levels and reorder points. Our software offers reorder points on a per-location basis, so if you have multiple offices or manufacturing sites, each of them can track stock separately (while still being able to transfer stock to each other). You can see our manufacturing features here:
But if you want an overview of other manufacturing software, Capterra is a good place to start: https://www.capterra.com/
May I know can we use this reorder formula for ordering items for multiples shop from production for donut business.
Hi Yin Yin, yes you could. I’d just recommend using the formula on a per-location basis. Don’t just use it once across all locations.
how do we get the average daily unit sales?
I hope you are doing well. I read your article “Reorder Point Formula and Safety Stock” which was very informative.
I have a few questions related to re-order point but I have not been able to find a good answer to it. Could you please explain what are the different variables that can affect the reorder point or level from within the organization? Or what are the factors that may hamper the warehouse or distribution center from placing a reorder or effect it in any way.
I would appreciate if you can provide me any lead on my question.
Which formula of Re-order point to be used if an organisation has a policy to keep safety inventory?
Does order frequency need to be taken into account when looking safety stock settings within the re-order point formula.
– Jan 120
– Feb 80
– Mar 60
– Apr 97
– May 118
– June 28
– Average 84 units per Month
– Max 120 units per Month
– Lead time 14 days
– Order frequency 7 days
Reorder point = Avg daily sales * lead time) + SS
Reorder point = (2.8*14) + (14*2)
Reorder point = 67.2
Do I need to add any additional safety stock based on whether my order frequency was 1 week or 4 weeks?
Frequency doesn’t need to be taken into consideration when dealing with any of these calculations. Figuring out your reorder point is all about not having to order on a regular basis but instead ordering only when you need product. That way you’re never sitting on excess inventory which can come with added costs. When implemented correctly using reorder points will ensure you’ll always stay at the perfect level of stock without ever dealing with stock outs. Your safety stock will be there just in case you experience any unforeseen shipping delays.
Hope this helps,
Very impressive, thanks a lot for sharing a helpful post with us.
Thanks for reading, we’re glad you liked it! We love helping people out in anyway we can around here 😉
All the best,
How can I account for demand in relatively set multiples? In Maintenance many items are often used in multiples but, given the formula’s basis on average daily usage a Safety Stock value may result in an insufficient quantity.
Example 1: (2) units of an item are used per year and only ‘demanded’ once per year, the average daily value and resulting Safety Stock will be significantly less than (1) and the minimum stock will be set to (1). While the demand frequency is 1/yr, the quantity per demand is actually (2). Can that be baked into the Safety Stock and ROP?
Can I account for minimum projected demand? If item X has not been ‘requested’ in the past 365 days, but when demanded it is know that at least Y quantity will be demanded, 200 for example?
If you’re using multiple items in your workflow and they are required they should be factored into your formula. In the example you gave if 2 units are used per year then your demand per year should also be 2. Your minimum stock should be set to a number that will allow you to still operate. If you need 2 units to do maintenance then your minimum stock should be at least 2 units.
Hope this helps,
Great by all means and a very informative blog. I’ve learned something new today, keep sharing worthy info like this!
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Find the reorder point of a product if average weekly demand is 50 units, with lead time of 2 weeks, and standard deviation of demand during lead time is 10 units. Take z= 2:33 (99% service level), [ROP=x+25’d; x=dLT sd sdx Sq Rt (LT)]