A buying decision is late when it begins after stockout and early when incoming orders are ignored. Reorder point connects expected usage during supplier lead time with safety stock, triggering review rather than an automatic order.
A buying signal before the shelf is empty
The simple formula is average daily usage multiplied by lead-time days, plus safety stock. Time and unit bases must be consistent, and recurring demand should be separated from exceptional movements.
Demand during supplier lead time
Usage of 20 units a day, seven lead-time days and 30 safety units gives a 170-unit review threshold. If an open purchase order already has 100 units, reaching the threshold does not mean ordering 170 more.
Who changes the setting?
Sales sees upcoming demand, purchasing understands supply and the warehouse sees actual availability. Reorder changes need information from all three, with one accountable approver. Raising a trigger after one stockout may overreact to a genuinely one-off order.
Retain the old value, reason and change date, then review results after, for example, two replenishment cycles. Did stockouts fall, and did excess stock increase? This is a suggested review interval, not a universal rule; volatile or perishable items may need closer attention. Treat the setting as an assumption to test, not a number entered at implementation and forgotten.
The trigger is not the order quantity
An item sells twenty units per day, takes six days to replenish and has an illustrative safety stock of forty units. Its reorder point is 20 × 6 + 40 = 160 units. The safety stock is an example, not a universal recommendation; an actual setting depends on demand variability, lead-time variability and the desired service level.
Which balance should be compared with that point? If 100 units are available and another 100 are confirmed to arrive before depletion, ignoring the outstanding purchase can cause duplication. Conversely, a healthy physical balance may already be committed to customers. Define inventory position clearly, considering available stock, outstanding orders and relevant commitments, then check their dates.
The trigger does not determine how much to buy. Order quantity depends on supplier minimums, pack size, freight, shelf life, space and cash. An item can reach its reorder point while the supplier's minimum pack would create a year's excess stock.
After a significant supply delay, update lead-time assumptions using observed performance. Do not use quiet-season demand to plan a known peak. Back-testing is useful: when would the rule have triggered an order, and would the goods have arrived before depletion? This exposes unsuitable settings before they become unavailable customer orders.
Monitor demand and supply
- Clean item movement, unit and period data.
- Calculate representative usage and realistic lead time.
- Set safety stock and record its rationale.
- Review the threshold with incoming, reserved and seasonal quantities.
Sources & further reading
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