You sell 20 units a day and the supplier takes 7 days: reorder when you have 200 left. How to work it out.
Key findings
- Reorder point = daily sales × supplier lead time + safety stock.
- With 20 units a day, a 7-day lead time and 60 of safety stock, the reorder point is 200.
- If the lead time rises to 10 days, the point rises to 260: review it whenever the supplier changes.
The question: when to order
Order too late and you run out of stock and lose sales. Order too early or too much and you have money sitting in the warehouse. The reorder point answers when to order: how many units you should have left when you place the next order.
The formula
Reorder point = daily sales × supplier lead time in days + safety stock
The first part covers what you will sell while the order arrives. Safety stock covers the unexpected: a day of higher sales or a late supplier.
An example with numbers
You sell 20 units a day and the supplier takes 7 days. While the order arrives you will sell 140 units. With 60 units of safety stock (3 days of sales), the reorder point is 200: when stock falls to 200, it is time to order.
If you have 300 units today, you have 5 days left to place the order.
- If the supplier takes 10 days instead of 7, the reorder point rises to 260 and you only have 2 days.
- With no safety stock, the reorder point would be 140 and you could wait 8 days, but any delay or sales spike would leave you without stock.
How much safety stock to hold
It depends on how much your sales and supplier lead times vary, and how much running out costs you. A simple way to start is to express it in days of sales and adjust with experience:
- More days if the supplier often lets you down, sales are uneven or running out loses you customers.
- Fewer days if the product is expensive to store, expires or goes out of date quickly.
- Review it by season: in busy months, daily sales and risk go up.
Stock is money too
Every unit in the warehouse is money you have already paid and not yet collected. Getting the reorder point right improves your cash as much as your sales.
Work out your reorder point with the reorder point and safety stock calculator and measure the money tied up with the working capital calculator.