Reorder Point Formula: Your Supplier Is the Variable

Nobody looks at a full shelf and decides to order more. Somebody notices a gap — the peg with two hangers left, the bin that used to hold thirty units and now holds four — and that gap is what triggers a reorder in most small shops. By the time it's noticed and the order is sent, the four are down to one. By the time the box lands, they're often zero, and the customer who wanted it bought it somewhere else nine days ago.

A reorder point formula is supposed to fix that timing problem for everyone who touches it: the floor person who spots the gap, the manager who runs the stockroom and decides whether to panic-order, and the owner who's out the cash either way, for the sale that walked or the rush freight paid to fix it after the fact. It only works if you fill it in with real numbers instead of a feeling about how thin the shelf looks.

Most shops that try a reorder point get the arithmetic right and the inputs wrong. Two of the three terms are easy to measure. The third is the one almost nobody tracks, and it's the one that decides whether the shelf goes empty.

What is the reorder point formula?

The reorder point formula is: (average daily units sold multiplied by supplier lead time in days) plus safety stock. When stock on hand drops to that number, you place the order — not before, not after. Say you sell 6 units a day and the supplier takes 10 days. With a 3-day buffer on top, that's 60 plus 18 (three days' worth), or a reorder point of 78 units.

That's the whole formula. It fits on an index card taped inside the stockroom door. What decides whether it works is where those three numbers come from, and almost every shop gets one of them from the wrong place. (Wikipedia's overview of reorder point covers the standard math if you want the textbook version.)

Measure your supplier's lead time yourself

Suppliers quote lead time the way airlines quote flight times: optimistically, and under conditions that rarely hold. "5-7 business days" is the number on the order form. It is not the number that shows up in your receiving log.

The number you need is the one you measure yourself: the date you sent the purchase order, and the date the box actually landed on your dock. Do this for your next three orders from a given supplier. Write both dates down — a sticky note on the invoice is enough — and subtract.

Almost no small shop has this number anywhere. It costs nothing to start collecting, and it's the one input in the formula that supplier promises consistently lie about. A supplier who quotes seven days and delivers in six, nine, seven, and fourteen has an average of nine. But averaging hides the problem you're actually trying to solve for.

Now use the worst one, not the average

Here is where I part company with the textbook. It treats safety stock as mostly a demand problem. In a shop your size it isn't: safety stock exists almost entirely to cover how inconsistent your supplier's lead time is. A hot week rarely empties a shelf outright; you would see it coming in the daily counts and could rush a smaller top-up. The delivery that was supposed to take eight days and took nineteen is the one that actually strands you, and you get no warning at all until the box doesn't show up.

The cheap, good-enough version of a safety stock calculation isn't a statistics exercise. For anything you genuinely cannot afford to be out of, it's this: look at your last several deliveries from a supplier, find the worst one, and use the gap between that and your typical lead time as your safety stock. Typical lead time of eight days and a worst case of nineteen means your safety stock should cover eleven extra days of average sales, not three.

That number will feel large the first time you write it down. It's insurance against the delivery that actually hurts, not the one that's merely annoying. Check it again before any season when freight slows for everyone, because eight days can become twenty right before a holiday, for reasons that have nothing to do with you.

Not every SKU deserves a reorder point

Working out an accurate average daily sales figure, a measured lead time and a worst-case safety stock number takes an afternoon per supplier. Most of your inventory is not worth an afternoon. For your top sellers, and anything with a long or unreliable lead time, that time is well spent: a stockout there costs real revenue and maybe a customer who doesn't come back.

Here's a cutoff that works without a debate: sort last quarter by units sold, and set reorder points for whatever makes up the top 80% of units moved, plus anything with a measured lead time longer than 14 days. Eyeball the rest: the one-off color, the item that sells four units a year, the impulse add-on you reorder twice a season. Glance at the shelf, order a case when it's thin, move on.

Put the number where the gap gets noticed

A reorder point that lives only in a spreadsheet doesn't get used. The people who notice the gap are the closing shift and the part-timer unboxing stock at 7am. Neither has a login to that spreadsheet.

Write the reorder point on the bin, the peg, or a card taped to the shelf edge. Some shops draw a line inside the bin at the fill level that matches the number. The point is that the person who sees the gap and the person who decides to act on it should be the same person, without opening anything. If your point of sale keeps a running stock ledger, that's a natural place to store the number too — VoVi has low-stock alerts, so the alert comes to you and the ledger does the noticing instead of the closing shift.

Order smaller and more often, not big and rare

The reorder point tells you when to buy. Deciding how much to buy is a separate question, and the instinct once the point fires is to round way up: we're placing an order anyway, might as well get six months of everything. That instinct is how dead stock gets born. Order enough to cover one lead time of sales, plus a case. In the example above that's 60 units and a case, and padding it further because you're already placing an order fills a shelf with stock that isn't moving by spring, marked down twice before it clears.

Suppliers with a minimum order won't always let you do this. When their minimum is bigger than your restock target, order the minimum and stretch the interval instead of padding on top of it.

If you want to see what that padding costs in real terms, read the case for cutting a dead item's price once instead of eleven times. Smaller, more frequent orders keep cash moving and shelves matched to what's actually selling. That matters most on a mall cart, which has nowhere to put six months of anything, so its reorder points have to be tighter and its orders smaller by design. Selling from a cart or kiosk is a different job in more ways than that one.

The number written on the bin is the only thing standing between your supplier's bad week and yours.

Common questions

What if I don't have any lead time data yet?

Start today: write the PO date on the order and the delivery date when the box arrives, for every order you place from now on. Until you have three data points from a supplier, treat their quoted lead time multiplied by 1.5 as a stand-in worst case. Seven quoted days becomes ten and a half, so safety stock covers the three-and-a-half-day gap. Replace it with your measured worst case as soon as you have three deliveries.

Does the reorder point account for a seasonal jump in demand, or only supplier delays?

Both, and they enter the formula differently. A seasonal spike changes your average daily units, so recalculate that figure using last year's same-season sales rather than your year-round average, or the reorder point will fire too late. A seasonal supply crunch is a lead-time problem instead, and belongs in the safety stock term, not the demand term.

How often should a reorder point be recalculated?

Quarterly is a sensible floor. Beyond that, any order that arrives later than your current worst case should replace that number on the spot, since it means the range you're protecting against just got wider.