How to calculate your reorder point

When to reorder, how much buffer to hold, and how much to order. Try your numbers in the free calculator.

Reorder point

Reorder point = average daily sales × supplier lead time + safety stock. If you sell 20 a day, the supplier takes 5 days and you want 2 days of buffer: 20 × 5 + 20 × 2 = 140 units. When stock drops to 140, order.

Safety stock from a service level

If your daily sales vary, a buffer in days is a guess. A common method is z × daily variation × √(lead time). With a 95% service level (z = 1.645), a daily standard deviation of 4 units and a 9-day lead time: 1.645 × 4 × 3 = 19.7 units, so the reorder point is 20 × 9 + 19.7 = 199.7, round up to 200.

How much to order: EOQ

The economic order quantity balances the cost of placing orders against the cost of holding stock: √(2 × yearly demand × order cost ÷ yearly holding cost per unit). With 1,000 units a year, $50 per order and $2 holding cost per unit: √(2 × 1,000 × 50 ÷ 2) = about 224 units, roughly 4.5 orders a year.

Limits

These formulas assume steady demand. Seasonal items, supplier minimums, price breaks and unreliable lead times all call for adjustments.

General information, not business advice.