Glossary/Reorder point
What is reorder point?
A reorder point is the on-hand inventory level at which a replenishment order must be placed so that new stock arrives before the existing stock runs out. It equals expected demand over the replenishment lead time plus safety stock. The first term covers what will sell while the order is in transit; the second covers the possibility that demand runs hot or the shipment runs late. Unlike a calendar-based ordering habit, a reorder point responds to how fast a product is actually selling, which is what makes it robust to the demand swings that marketplace campaign calendars produce.
01/Formula
Formula
Reorder point = (average daily demand × lead time in days) + safety stock With in-transit stock: order when (on hand + on order) ≤ reorder point Order quantity is a separate decision — see economic order quantity.
Example
Average daily demand 20 units, supplier lead time 14 days, safety stock 108 units at a 95% service level. Reorder point = (20 × 14) + 108 = 388 units With 500 on hand and nothing on order, no action. At 388 the order goes out. It arrives with roughly 108 units left, unless demand or the supplier misbehaves — which is what the 108 is for.
02/In detail
What lead time should you use?
The full one, measured from the moment you decide to order to the moment the stock is sellable. That includes the internal approval and purchase-order step, the supplier’s production or picking time, transit, customs clearance, inbound receiving, quality check, and getting the units listed and available — including any marketplace-warehouse inbound time if you use one. Sellers routinely use the supplier’s quoted shipping time alone and are then surprised by stockouts, because the quoted number is often less than half of the real elapsed time. Measure it from your own purchase history rather than from the supplier’s claim, and measure its variability at the same time, because that variability is the dominant input into safety stock.
How do campaign days change the reorder point?
They break the average-daily-demand term, which is the assumption the whole formula rests on. If a mega-campaign falls inside the lead-time window, expected demand over that window is not fourteen ordinary days — it is twelve ordinary days plus two days at several times the rate. The fix is to compute lead-time demand from a forward forecast that knows the campaign calendar, rather than from a trailing average that does not. Shops that reorder on a trailing average reliably stock out in the week after a campaign, because the campaign both consumed the buffer and inflated the average that the next order was sized from.
What does the reorder point not decide?
How much to order. The reorder point answers when; the order quantity is a separate optimisation trading the fixed cost of placing and receiving an order against the cost of holding what arrives, which is the economic order quantity problem. Conflating the two produces one of two failure modes: ordering the reorder-point quantity every time, which orders too frequently in small lots, or ordering a fixed large quantity regardless of how demand has shifted. On marketplaces there is a third input as well, since supplier price breaks and container economics often dominate the textbook trade-off.
03/Why it matters
The trap, in one paragraph.
Most marketplace shops replenish on a rhythm — a weekly review, a monthly purchase order — rather than on a level, and the rhythm does not know when a product is selling faster than usual. A reorder point converts replenishment from a calendar habit into a demand-responsive trigger, which is the difference between discovering a stockout and preventing one. It is also the cheapest inventory improvement available, because it needs no new data beyond demand, lead time, and their variability.
Common mistake
Comparing the reorder point against on-hand stock only. Stock already ordered and in transit counts toward covering lead-time demand, and ignoring it produces duplicate orders and overstock — the classic pattern of a shop that stocks out and then over-corrects two weeks later when both shipments land.
04/In DataGlass
How Reorder point is used in DataGlass.
DataGlass computes reorder points per SKU from forecast demand over the measured lead time plus a safety buffer sized from that SKU’s own demand variability, and accounts for stock already in transit. Known campaign windows are included in the lead-time demand rather than smoothed into a trailing average.
05/Sources
- [1] Reorder point
The standard reorder-point formulation as lead-time demand plus safety stock.
- [2] Economic order quantity
The separate order-quantity decision, trading ordering cost against holding cost — what the reorder point deliberately does not answer.
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