A reorder point triggers a new order before you run out: average demand over the lead time, plus a safety stock buffer for variability. Cross it, and it’s time to reorder.
The example
20/day, 7-day lead, 30 buffer.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Lead-time demand | 140 |
| 3 | + Safety stock | 30 → 170 units |
The formula
The formula:
How it works
How it works:
- Lead-time demand = average daily demand × lead time in days — what you’ll sell while waiting.
- Safety stock buffers against demand spikes and supplier delays.
- Add them: when on-hand stock drops to this reorder point, place a new order.
- A common safety-stock rule:
Z × demand_std × SQRT(lead_time)for a target service level.
Sizing safety stock: a simple buffer is a flat number of days’ demand. A statistical version — Z * demand_std_dev * SQRT(lead_time) — sets the buffer for a chosen service level (Z = 1.65 for ~95%). More buffer cuts stockouts but ties up cash; pick the Z that matches your tolerance.
Try it: interactive demo
Daily demand, lead time, safety stock.
Variations
Lead-time demand
No buffer:
Statistical safety stock
Service level:
Days of buffer
Flat days:
Pitfalls & errors
Match the units. Daily demand needs lead time in days — keep time units aligned.
Buffer trade-off. More safety stock means fewer stockouts but more cash tied up.
Update demand. Recalculate average demand as sales trends shift.
Practice workbook
Frequently asked questions
How do I calculate a reorder point in Excel?
How do I set safety stock?
What is lead-time demand?
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