A reorder point (ROP) is the specific inventory level at which a business should place a new order to replenish stock before it runs out. When the quantity on hand falls to the reorder point, it is time to raise a purchase order with the supplier. Setting it correctly keeps a product available for sale while avoiding the cost of holding too much stock.
The reorder point answers a simple but critical question: at what stock level do I reorder so the next delivery arrives just as I am about to sell out? It combines how fast a product sells (demand) with how long the supplier takes to deliver (lead time), plus a cushion of safety stock to absorb surprises.
Reorder point formula
The standard formula is:
Reorder Point = (Average Daily Usage × Lead Time in Days) + Safety Stock
Worked example
Suppose a Karachi electronics retailer sells on average 20 power banks per day. The supplier in Lahore takes 5 days to deliver, and the shop keeps 30 units of safety stock. The reorder point is (20 × 5) + 30 = 130 units. The moment stock drops to 130, the system flags a reorder so the shelf never goes empty during the 5-day wait.
Why the reorder point matters
A reorder point that is too low causes stockouts, lost sales, and disappointed customers. One that is too high ties up cash in excess inventory and warehouse space. Calculating a per-product ROP — rather than reordering on gut feel — is one of the highest-impact inventory habits a growing retailer or distributor can adopt.
An ERP or POS system can monitor live stock against each product’s reorder point and raise purchase orders automatically. EloERP’s cloud ERP tracks usage and lead time per SKU and alerts you the instant any item hits its trigger level, so reordering becomes a managed process instead of a daily scramble.
Related glossary terms
Frequently asked questions
What is the difference between reorder point and reorder quantity?
The reorder point is when to order — the stock level that triggers a purchase order. The reorder quantity is how much to order, often calculated with the Economic Order Quantity (EOQ) formula. You need both: ROP tells you the timing, EOQ tells you the size.
Does the reorder point include safety stock?
Yes. The reorder point is built from expected demand during the supplier’s lead time plus a safety-stock buffer. Without safety stock, any delay in delivery or spike in demand would cause a stockout before the new order arrives.
How often should I recalculate the reorder point?
Review it whenever demand patterns or supplier lead times change — for fast-moving or seasonal products that may be monthly. Modern inventory systems recalculate the reorder point continuously from live sales data so the trigger stays accurate.