Run it with less chaos · Every business
How to Set a Reorder Point (With a Simple Formula)
A reorder point tells the front desk exactly when to place the next order, so best sellers are replaced before the shelf is empty and slow products are not bought early.
The reorder point formula is reorder point = average daily sales × lead time in days + safety stock, where lead time is the number of days between placing an order and having it on the shelf. For a product that sells 2 units a day with a 5-day lead time and 4 units of safety stock, you reorder when the shelf count falls to 14.
The formula, step by step
| Step | What to find | Example | Source |
|---|---|---|---|
| 1 | Average daily sales: units sold over the last 8 to 12 weeks ÷ days open | 2 units a day | Assumption |
| 2 | Lead time: days from placing an order to stock on the shelf, using a typical recent order | 5 days | Assumption |
| 3 | Demand during lead time: daily sales × lead time | 10 units | Calculated (2 × 5) |
| 4 | Safety stock: a buffer for busy days and late deliveries (see below) | 4 units | Calculated (rounded up from 3.68) |
| 5 | Reorder point: demand during lead time + safety stock | 14 units | Calculated (10 + 4) |
| 6 | Order quantity: enough to cover the weeks until the following order, adjusted to the case size | e.g. one case of 24 | Assumption |
Setting safety stock
The simplest version is a fixed buffer, such as two or three days of sales. The standard formula from inventory textbooks is safety stock = z × standard deviation of daily sales × √lead time, where z reflects how often you are willing to run out during the wait for a delivery. In the example, daily sales vary by about 1 unit (standard deviation, assumption), so at a 95% level the buffer is 1.645 × 1 × √5 = 3.68, rounded up to 4.
A checklist to put it to work
- Pick your 10 to 20 best-selling products first; slow movers can be ordered on request.
- Calculate each one's reorder point and write it on the shelf tag or in your point-of-sale system's low-stock alert.
- Count those products on the same day each week, before the distributor order.
- Order any product at or below its reorder point.
- Recalculate every quarter, and before a busy season, since daily sales and lead times change.
Why it works
Many empty shelves start inside the business; a worldwide study of retail out-of-stocks across 661 stores in 29 countries traced 47% of them to the store's own ordering and forecasting, and found that 31% of shoppers facing an empty shelf went to another store. A reorder point replaces a guess at order time with a number set in advance, which addresses the largest of those causes directly.
Sources
- Gruen, T., Corsten, D. and Bharadwaj, S. Retail Out-of-Stocks: A Worldwide Examination of Extent, Causes and Consumer Responses. Grocery Manufacturers of America, Food Marketing Institute and CIES, 2002. 661 stores, 71,000 consumers in 29 countries.
- Silver, E. A., Pyke, D. F. and Thomas, D. J. Inventory and Production Management in Supply Chains, 4th ed. CRC Press, 2017. (Reorder point and safety stock framework.)
Email hello@osnovaops.com about your business to set up reorder points and a weekly count that fit your shelves.
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