Reorder Points and Safety Stock, Explained With Real Numbers
Running out costs you sales and search ranking. Ordering too early ties up cash. A reorder point tells you the exact moment to place the next order.
The idea in one sentence
Reorder when the stock you have left will just about last until the new order arrives, plus a cushion for surprises.
That gives the formula:
Lead time is everything from placing the order to having the stock on your shelf and ready to sell, including processing, shipping and the day it takes you to check it in.
A worked example
You sell an average of 4 units a day of a popular mug. Your supplier usually takes 10 days door to door.
Without a cushion, you'd reorder at 40 units. But sales aren't perfectly steady, and shipping isn't either. That's what safety stock is for.
Safety stock: the simple method
Look back over the last few months. Find your busiest day for this item and your slowest delivery.
This method is easy and cautious. It assumes your worst day and your worst delivery happen together, which is rare, so it tends to hold more stock than strictly necessary. For a small seller who hates stockouts, that can be the right trade.
Safety stock: the service-level method
If you have daily sales history, calculate the standard deviation of daily sales (spreadsheets do this with =STDEV.S()). Then choose how often you're willing to run out during a reorder cycle. That "service level" maps to a number called Z:
| Service level | Z |
|---|---|
| 90% | 1.28 |
| 95% | 1.65 |
| 97% | 1.88 |
| 98% | 2.05 |
| 99% | 2.33 |
This version assumes lead time is fairly steady and daily sales vary in a roughly bell-shaped way. If your supplier's delivery times swing a lot, the simple method may be safer.
Free tool: Reorder Point & Safety StockKnow exactly when to reorder, with a buffer for slow suppliers.
Using reorder points day to day
- Count stock already ordered but not yet received. Reorder when on hand + on order hits the reorder point.
- Add a "Reorder at" column next to each SKU in your spreadsheet, and highlight rows where quantity falls below it.
- Recalculate before your busy season. A reorder point based on summer sales will leave you short in December.
- For one-of-a-kind resale stock, reorder points don't apply. Use them for the items you restock repeatedly.
How much to order
The reorder point tells you when. How much depends on supplier minimums, price breaks, storage space and cash. A simple rule: order enough to cover lead time plus the number of days until your next planned order, then adjust for what you can afford to have sitting on a shelf. Check that against how fast stock turns over.