What is a reorder point?
The reorder point is the stock level at which you place a new order so it arrives before you run out. Here is the formula, an example and how sellers use it.
By the PromptLab team6 November 20263 min read
Definition
Reorder point
The reorder point is the stock level that triggers a new order to the supplier. It is set so the new stock arrives just before the shelf runs empty. It equals the demand during the supplier's lead time, plus a safety buffer.
Set too low, you run out and create backorders. Set too high, you tie up cash in stock that sits.
The formula
Reorder point = (average daily demand × lead time in days) + safety stock
- Average daily demand: how many units you sell or use per day, on average.
- Lead time: days between placing the order and receiving the goods.
- Safety stock: extra units to cover a late delivery or a spike in demand.
An example from product sales
Say a packaging wholesaler sells 40 boxes a day of one size. The supplier takes 10 days to deliver. The wholesaler wants 150 boxes of safety stock.
Demand over the lead time is 40 × 10 = 400 boxes. The reorder point is 400 + 150 = 550. When stock falls to 550, it places the next order. If everything goes to plan, it receives the new stock when 150 boxes are left.
Why it matters
A reorder point turns a vague "we should reorder soon" into a number anyone can act on. It reduces stock-outs on fast movers and avoids overbuying slow ones.
It also helps the sales side. When a rep knows a product's lead time and a customer's usual order size, they can see when that customer is likely to run low and ask about the next order first.
Reorder point from the buyer's side
Your customers have reorder points too. A customer who uses 800 units a month and needs two weeks to receive yours will want to order before its stock hits that two-week mark. If you remember the pattern, you can ping them just before. See how to increase repeat orders and the reorder reminder templates.
What changes the reorder point
- A longer or less reliable lead time.
- A change in demand, such as a season.
- A change in order size or MOQ.
- A supplier switch.
Review the number when any of these move, not only once a year.
Common mistakes
- Using the average lead time for an unreliable supplier. Add safety stock.
- Forgetting seasonal swings. Demand in March is not demand in July.
- Setting it once and never checking. The inputs drift.
- Confusing it with order quantity. The reorder point says when to order, not how much.
Related terms
- Lead time: the days a restock takes.
- Backorder: what happens when stock hits zero first.
- MOQ: the smallest order a supplier accepts.
- Consignment stock: stock held at the customer's site.
- Order backlog: orders received but not yet delivered.
How PromptLab handles it
PromptLab does not manage stock levels, so keep the reorder point in your ERP or stock system. It helps with the sales side of it: the account's Overview shows its last order, sales orders hold the history, and a task dated for the next expected order prompts a rep to contact the buyer before it is due.
Frequently asked questions
What is a reorder point?
It is the stock level at which you place a new order, so it arrives before you run out.
How do you calculate the reorder point?
Multiply average daily demand by lead time in days, then add safety stock. With 40 units a day, 10 days lead time and 150 safety stock, it is 550.
What is the difference between reorder point and safety stock?
Safety stock is the buffer inside the reorder point. The reorder point is the whole trigger level: lead-time demand plus the buffer.
What is the difference between reorder point and reorder quantity?
The reorder point says when to order. The reorder quantity says how much to order.
How often should I update my reorder points?
Review them whenever lead times, demand or supplier terms change, and at least a few times a year for fast-moving products.