Reorder Point Calculator
Find the safety stock and the reorder point from the average and maximum demand and lead time. This is a simple calculation that does not use statistical formulas.
Formulas
This tool uses the following simple approach. It is not the statistical formula (with a z-score and the standard deviation of demand) that many guides present.
- Average demand during lead time = average demand × average lead time
- Safety stock = maximum demand × maximum lead time − average demand × average lead time
- Reorder point = average demand during lead time + safety stock (which equals maximum demand × maximum lead time)
The reorder point is a guide to the stock quantity at which you place an order. The idea is that stock should last even if the maximum demand continues for the maximum lead time, from the moment you order until the goods arrive.
Input conditions
- Use the same time unit for demand and lead time (choose days, weeks or months). Choosing a unit only changes the labels. The calculation is the same.
- The maximum demand must be at least the average demand, and the maximum lead time at least the average lead time. If they are the other way around, the safety stock would be negative, so the tool shows an error.
- Quantities can have up to 2 decimal places. The results are rounded to whole numbers (rounding up by default). The exact value before rounding is also shown.
Examples
| Input | Result |
|---|---|
| Average demand 10 units/day, maximum demand 15 units/day, average lead time 4 days, maximum lead time 6 days | Average demand during lead time 40 units, safety stock 50 units, reorder point 90 units |
| Average demand 10 units/day, maximum demand 10 units/day, average lead time 4 days, maximum lead time 4 days | Safety stock 0 units, reorder point 40 units |
Limits of the simple model
- It does not guarantee a probability of stockouts. It assumes that the maximum demand and the maximum lead time happen together, a cautious assumption that tends to give a larger stock. If demand or lead time goes above your "maximum", you can still run out.
- It does not use the variation (standard deviation) of demand or lead time, a service level (the probability of a stockout you accept), an order quantity (economic order quantity), the order interval, quantities already ordered but not yet received, or the current stock. Statistical methods, which use a factor based on the service level, are a different approach and are outside this tool.
- The definition and the formula of "safety stock" differ between companies and industries.
The idea behind this tool
This is a simple calculation that uses the maximum demand and the maximum lead time. It does not estimate the variability of demand statistically, and it does not guarantee a stockout probability or a service level.
Explanatory articles describe the reorder point as the demand during lead time plus safety stock. How safety stock is found differs between companies and industries, and statistical methods exist (using the average and standard deviation and a service-level factor). This tool uses only the simple method above.
How this differs from inventory turnover
The Inventory Turnover Calculator measures how quickly stock turned over in a past period, from actual figures. This tool gives a guide for when to place an order from now on.
Frequently asked questions
What should I do when stock falls below the reorder point?
The reorder point is a guide to when to start ordering. In practice, also consider quantities already on order, the order size, and the supplier's terms. This tool does not use the current stock or quantities already ordered.
Which value should I use for maximum demand?
Use a value that you decide, such as the highest past figure, an upper level, or a forecast. The safety stock changes a lot depending on the level you choose.
Can the average demand be 0?
Yes. If the average demand is 0 and the maximum demand is positive, the safety stock is maximum demand × maximum lead time. If everything is 0, the result is 0 too.