What the reorder point is
The reorder point (ROP) is the inventory level at which a business needs to place a new order to avoid running out of stock before the replacement arrives. It is not the same as "zero" or "low"—it is calculated to account for how much you typically sell during the time it takes a new order to arrive.
Get it wrong in one direction and you stock out while waiting on a delayed order; get it wrong in the other and you are placing orders too early, tying up cash in stock you did not yet need.
The reorder point formula
The standard formula is: Reorder Point = (Average Daily Usage × Average Lead Time in Days) + Safety Stock. The first part covers demand during the normal wait for a new order; safety stock is the buffer added on top to absorb demand spikes or a supplier running late.
A product selling 10 units a day with a 7-day supplier lead time and 20 units of safety stock has a reorder point of (10 × 7) + 20 = 90 units—order a new batch as soon as stock hits 90, not when it hits zero.
- Average daily usage: recent sales velocity for the item
- Average lead time: how many days it typically takes a new order to arrive
- Safety stock: buffer for demand variability or a late supplier
Reorder point vs. economic order quantity
Reorder point and economic order quantity solve two different questions. Reorder point answers "at what stock level do I need to order?" Economic order quantity answers "how many units should I order each time?" You need both: ordering at the right time but the wrong quantity still leaves you either overstocked or short again soon after.
Setting reorder points in practice
In StockFlow, the minimum stock level you set per product functions as its reorder point—once quantity on hand reaches that number, StockFlow sends a low-stock alert. Base it on real sales velocity and actual supplier lead time for that specific item rather than a flat number applied across your whole catalog, since fast-moving and slow-moving items need very different thresholds.
Revisit reorder points periodically. A supplier whose lead time has gotten longer, or a product whose sell-through has picked up, both mean the old reorder point is now too low—if alerts are consistently firing after you have already run tight on stock, the threshold needs raising.