Reorder Point

The arithmetic is simple: reorder point = average demand per period × lead time + safety stock. All the difficulty sits in the inputs. Lead time has to be the measured distribution of actual deliveries, not the number written into the supplier contract, and demand has to be the forecast for the coming weeks rather than a trailing average that ignores a season or a promotion.

• Reorder point = average demand per period × lead time + safety stock
• Lead time demand – expected consumption between placing an order and receiving it into stock
• Safety stock – the buffer for demand and lead time variability; it sets the service level the reorder point can achieve

Two mistakes make an otherwise correct reorder point misfire. The trigger has to compare inventory position – stock on hand plus quantities already on order minus backorders – against the threshold; comparing on‑hand stock alone re‑orders items that are already in transit. And the parameter ages: lead times shift, demand moves, and a reorder point set once at go‑live drifts into either constant expediting or permanent overstock. Under periodic review, where stock is checked on a fixed cycle instead of continuously, the review interval has to be added to the lead time, otherwise the buffer covers only part of the exposure.

Reorder point in practice

A reorder point is worth what its recalculation frequency makes it worth. Veritico STOCK derives the reorder level per item and location from the current forecast, the safety stock and the lead time it computes from actual deliveries, then feeds it straight into order proposals, so planners approve exceptions instead of maintaining thresholds by hand. See demand forecasting and inventory optimization, replenishment and allocation management and the Albert case study.

Related terms

• Safety stock
• Lead time
• Replenishment
• Stockout
• Bullwhip effect
• Demand planning