Definition
The reorder point (ROP) is the inventory level at which a new purchase order should be placed so that it arrives before existing stock runs out. It is calculated as: ROP = (Average Daily Demand × Lead Time in Days) + Safety Stock. The lead time demand component ensures you have enough stock to cover sales during the replenishment period. The safety stock component provides a buffer against demand spikes and lead time delays. Reorder points must be updated when demand patterns change seasonally, when suppliers change lead times, or when service level targets change. Many ERP and inventory systems can automate ROP updates using rolling demand averages.
Why It Matters
The reorder point is the primary operational trigger for purchasing. An ROP set too high creates excess inventory — you're ordering sooner than necessary and holding more stock. An ROP set too low causes stockouts — orders are placed too late and inventory runs dry before replenishment arrives. Getting ROP right for your top 20% of SKUs is typically worth 10–15% inventory reduction with no service level impact. Inventory Optimization Tool →
Frequently Asked Questions
How do you calculate reorder point?
Reorder Point = (Average Daily Demand × Replenishment Lead Time in Days) + Safety Stock. Example: if average daily demand is 20 units, lead time is 7 days, and safety stock is 40 units, ROP = (20 × 7) + 40 = 180 units. When on-hand inventory hits 180, place a purchase order.
What is the difference between reorder point and reorder quantity?
Reorder point (ROP) is the inventory level that triggers an order — it tells you WHEN to order. Reorder quantity (often set to EOQ or rounded to supplier MOQ) is how much to order — it tells you HOW MUCH to order. Both are separate decisions with separate calculations.
How often should you update reorder points?
Reorder points should be updated whenever demand patterns change materially — at minimum quarterly. For seasonal products, update before each season using seasonal demand factors. High-velocity A-items warrant monthly updates; C-items may only need annual review unless a demand event (product launch, customer loss) triggers a manual update.