Reorder pointReorder Point (ROP)

The reorder point (ROP) is the stock level at which you trigger the next purchase order for a SKU. When on-hand stock drops to this number, place the order — calculated so the new stock arrives before you run out.

It's the answer to "when do I reorder?" — distinct from "how much do I order?" (which is governed by MOQ and case-pack constraints).

Get the reorder point right and the rest of replenishment becomes tractable. Get it wrong and you're either stocking out (reordered too late) or sitting on a six-month pile (reordered too early).

The reorder point formula

The standard version:

ROP = (Average Daily Demand × Lead Time in Days) + Safety Stock

In plain English: how much will sell during the lead-time window, plus the buffer you carry for things going wrong.

If you sell 50 units a day on average, your supplier's lead time is 30 days, and your safety stock is 4 days' cover (50 × 4 = 200 units):

ROP = (50 × 30) + 200 = 1,700 units

When stock drops to 1,700, you place the next PO. The 1,500 units you'll sell over the lead time clear out the standard pile; the 200 units of safety stock cover variance. New stock lands as you're approaching the safety-stock floor.

Why each input matters

Three numbers feed the calculation, and each has its own gotchas.

Average daily demand.

Use a rolling window that matches your business cycle. For a steady-demand SKU, the trailing 90 days is fine. For a seasonal SKU, you need a forecast — last year's same-period demand adjusted for growth, not the trailing average (which will be wrong every spring and autumn).

Lead time in days.

Total time from placing the PO to receiving usable stock — including supplier processing, production, freight, customs, and inbound processing. Not the supplier's quoted "factory door" time. Use a percentile (90th or 95th) that matches your service-level target, not the average.

Safety stock.

Calculated separately from demand variability, lead-time variability, and service-level target. The reorder point absorbs the expected variance through safety stock; if your safety stock is wrong, your reorder point is wrong.

A worked example with seasonality

Sales of a Christmas SKU last year:

• October: 60 units/day average
• November: 120 units/day average
• December: 200 units/day average (peak)

Lead time: 45 days (manufacturing in Asia) Safety stock: ~4 days' cover at peak demand (800 units — high because peak-season stockouts are expensive)

If you reorder in mid-October using the trailing 30-day average (60/day):

ROP (trailing avg) = (60 × 45) + 800 = 3,500 units

The PO arrives at end of November. Daily demand is now 120, climbing towards 200. Stock disappears in days. Stockout in December.

If you reorder in mid-October using the forward-looking expected demand (the average during the lead-time window — Nov–early Dec ≈ 150/day):

ROP (forecast) = (150 × 45) + 800 = 7,550 units

That's the right answer. Reorder when on-hand drops to 7,550, get a PO that actually covers Black Friday and the December run-up.

The lesson: for seasonal SKUs, the reorder point has to use the forecast demand for the upcoming lead-time window, not the trailing average.

Reorder point vs reorder quantity

The reorder point tells you when to order. The reorder quantity tells you how much.

Quantity is driven by:

• MOQ — the floor your supplier accepts
• Container or pallet sizing — what physically fits in the truck
• Forecast for the next reorder cycle

Mixing these up is one of the most common spreadsheet failures. A spreadsheet that calculates reorder quantity from a moving-average reorder point will tell you to order whatever-amount-you-want at whatever-time-you-want — useful for nothing.

Common reorder point mistakes

• Using trailing-average demand for seasonal SKUs. Forecast the lead-time window, not the recent past.
• Using supplier-quoted lead time instead of total real lead time. Always longer than the supplier admits.
• Ignoring lead-time variability. Average lead time of 45 days with a 95th percentile of 65 days needs the 65 in the formula, not the 45.
• Forgetting to update reorder points when conditions change. A new freight route, a supplier change, a demand shift — all invalidate yesterday's ROP.
• Setting reorder points once and never reviewing. Quarterly review at minimum; monthly for fast-moving categories.

Try the safety stock calculator

Reorder point depends on safety stock, which is the harder number to size. The safety stock calculator computes both — enter average demand, variability, and lead time, and it returns safety stock and reorder point side by side.