Stock and manufacturing glossary
Reorder point
The reorder point is the stock level at which you should place a new purchase order, so that fresh stock arrives before you run out. It is usually your average daily sales multiplied by the vendor's lead time in days, plus a safety stock.
Why it matters to your business
Running out of a fast-moving item costs you the sale, and often the customer. Ordering too early ties up cash and warehouse space. A reorder point for each important item turns “someone will notice” into a rule: when stock reaches this level, order. It also lets you hand buying to a team member with confidence.
How it works
A hardware distributor sells an average of 25 units a day of a popular item. The vendor delivers in 6 days, and the distributor keeps 50 units as a buffer.
Reorder point = 25 × 6 + 50 = 200 units.
When stock falls to 200, an order goes out. Over the next 6 days about 150 units sell, so stock is around 50, the safety stock, when the delivery arrives. If a large customer’s sales order has already reserved 30 units, the stock you can really count on is 30 lower, and it is time to order sooner.
If each order is for 400 units at ₹180, you place about one order every 16 days and each commits ₹72,000 before GST.
Common mistakes
- Forgetting stock already on order. If an order is on its way, ordering again when stock touches the level doubles the delivery.
- Ignoring reserved stock. Units promised on open sales orders are as good as sold.
- Using last year’s lead time. Vendor lead times change; check them against recent deliveries.
- One rule for every item. Slow-moving, expensive items need a lower buffer than fast, cheap ones. Focus your effort on the items that matter most to sales.
Questions about Reorder point
How do I calculate the reorder point?
Multiply your average daily usage by the lead time in days, then add safety stock. If you sell 25 units a day, the vendor takes 6 days, and you keep 50 as safety stock, the reorder point is 200.
What is the difference between the reorder point and the reorder quantity?
The reorder point is when to order. The reorder quantity is how much to order each time, set by how often you want to order, pack sizes, vendor minimums and how much cash you can tie up.
Should the reorder point be the same in every warehouse?
No. Each warehouse has its own sales rate and often a different lead time, so set a level per warehouse where it matters.
How often should I revise reorder points?
Whenever sales or lead times change noticeably, and at least before each season. A reorder point set a year ago for a seasonal item is usually wrong.
Updated .