INVENTORY REORDERING
How to Set a Reorder Point
A reorder point covers expected demand during supplier lead time plus an allowance for uncertainty.
SHORT ANSWER
Start with the inputs you can verify
A reorder point covers expected demand during supplier lead time plus an allowance for uncertainty.
What the estimate means
Use lead-time demand in the same units as inventory.
Safety stock should reflect demand and lead-time variability rather than an arbitrary percentage.
Where estimates go wrong
Review supplier performance and seasonal demand because an old reorder point can be more dangerous than no calculation.
Keep the source measurements and assumptions with the result so another person can review or update the estimate later.
A practical workflow
- Measure realistic lead time from order to available stock.
- Estimate demand during that period.
- Add a justified safety buffer and monitor stockout and excess-inventory signals.