Reorder Point Calculator
Reorder Point Formula
The formula to calculate reorder point is:
Reorder Point = SS + (L * D)where,
L is the average lead time to receive product
SS is the desired safety stock you wish to maintain
D is the number of sales you average per day
What is Reorder Point?
The reorder point is used by purchasing departments to minimize the likelihood of having a stockout (a stockout occurs when you don't have an item on the shelf, but you could have made a sale of the item... this is lost revenue!). It is a basic math formula that considers the lead time (the time it takes for a product to arrive at your facility once the order is placed), your desired safety stock level (the number of units you would like to keep on the shelf in case the lead time takes longer than average, or in case you sell more units than average), and the demand is the number of sales (or number of units used) your facility generates for the particular item in a given day (it can be a fractional number... i.e. .7 units a day). Keep in mind that the reorder point doesn't determine how much of a product to buy, it only determines that point at which a purchase should be made.
How to Calculate Reorder Point
(Phew, say that 5 times fast!) ABC Pipe sells on average 3 cans of PVC glue a day. From the time the purchasing department places an order with their vendor, to the time the item arrives, it takes on average 17 days. ABC Pipe would like an average safety stock of 4. How would you calculate reorder point given the information provided?
Based on the information provided:
L: 17 days
Given the information provided, the reorder point is 55 units. Keep in mind you may move this up or down based on the EOQ and the quantity price breaks a vendor may offer. Also take into consideration that the safety stock of 4 in this particular problem is extremly low and in the real world this would be a much higher quantity.