Reorder Point Calculator: Optimize Your Inventory Management

What Is a Reorder Point?

A Reorder Point (ROP) is the specific inventory level at which a new purchase order should be placed to replenish stock before it runs out. Calculating this point accurately helps businesses maintain optimal inventory levels, avoid stockouts, and reduce excess carrying costs.

Why Is the Reorder Point Crucial?

Implementing an accurate reorder point strategy offers several benefits:

• Prevents Stockouts: Ensures products are reordered before inventory depletes, maintaining sales continuity.

• Reduces Excess Inventory: Avoids overstocking, which can tie up capital and increase storage costs.

• Enhances Customer Satisfaction: Maintains product availability, leading to improved customer trust and loyalty.

• Optimizes Cash Flow: Balances inventory investment, freeing up resources for other business operations.

How to Calculate the Reorder Point

The standard formula for calculating the reorder point is:

Reorder Point (ROP) = (Average Daily Usage × Lead Time) + Safety Stock

Where:

• Average Daily Usage: The typical number of units sold or used per day.

• Lead Time: The time (in days) it takes for an order to be delivered after it’s placed.

• Safety Stock: Additional inventory held to mitigate risks of stockouts due to demand variability or supply delays.

Example Calculation

Suppose your business sells 100 units of a product daily. The supplier’s lead time is 5 days, and you maintain a safety stock of 200 units.

Applying the formula:

ROP = (100 × 5) + 200 = 700 units

This means you should place a new order when inventory levels drop to 700 units.