The reorder point is the threshold at which a new order has to be placed once stock falls to that level. It is the sum of the quantity that will sell during the lead time and the safety stock. Set correctly, stock does not run out before the new batch arrives; set wrongly, either the shelf empties or the warehouse swells.
The most common mistake is setting the threshold by feel rather than by unit maths. It has to be calculated separately for every product and updated as sales velocity changes; a fixed threshold makes no sense on seasonal products. On items where ad spend is increased, sales velocity will rise, so the threshold should be pulled up before the campaign. For businesses selling on marketplaces, the threshold also has to cover the time it takes to ship into the platform warehouse; if the product is in your own warehouse but not in the marketplace warehouse, sales still stop.
Reorder point = (Average daily sales × Lead time) + Safety stock
For a product selling 20 units a day with a 12-day lead time and a 180-unit buffer, the threshold is 20 × 12 + 180 = 420 units.
The most common mistake is setting the threshold by feel rather than by unit maths. It has to be calculated separately for every product and updated as sales velocity changes; a fixed threshold makes no sense on seasonal products. On items where ad spend is increased, sales velocity will rise, so the threshold should b…
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