A reorder point (ROP) is the stock level that triggers a new purchase order. When stock on hand (plus stock already on order) falls to this level, it’s time to buy. It equals the demand you expect during the supplier’s lead time, plus safety stock for the unexpected.
Reorder point, in plain English
You can't wait until the shelf is empty to reorder — the replacement stock takes weeks to arrive. The reorder point answers "how low can stock get before I must order?" It's the level at which what's left will just cover expected sales until the new delivery lands, with a buffer for surprises.
Worked example
A product sells 40 units a day on average. The supplier takes 21 days. Safety stock, from the demand variability, is 113 units:
Reorder point = 40 × 21 + 113 = 953 units. When available stock drops to 953, order — the remaining stock covers the three-week wait, and the 113-unit buffer absorbs a demand spike or a late lorry.
The mistakes that cause stockouts
- Counting only shelf stock. The trigger should compare against stock on hand plus on order — otherwise you double-order or, worse, assume a delivery that was never placed.
- Stale inputs. Demand and lead times both drift. A reorder point set eighteen months ago is a guess wearing a formula's clothes. Recalculate quarterly at minimum.
- One formula for everything. A steady seller and a spiky seasonal line need very different buffers. Applying a blanket rule under-protects the volatile products — exactly the ones that hurt.
- Ignoring the MOQ. The reorder point says when to order; the supplier's minimum order quantity constrains how much. Planning one without the other produces orders you can't actually place.
Optimal Chain calculates a reorder recommendation per product from a live forecast — not a stale average — with buffer stock sized from that product's real forecast track record and every supplier's lead time and MOQ respected. Instead of a static trigger you set once and forget, the recommendation moves with demand, and you can see the reasoning behind every number. Try the free safety stock calculator to compute the buffer part yourself.