Reorder point
The reorder point is the stock level at which a new purchase order is placed, set at expected demand during the supplier's lead time plus any safety stock held as a buffer.
FrameworkEOQ model
See it move
Loading infographic...
A component used at 40 units a day faces a 7-day supplier lead time, so expected usage during that gap is 40 × 7, or 280 units. Adding a 60-unit safety stock for demand above average gives a reorder point of 280 + 60, or 340 units — the level that triggers the next order.
Where it fits
SubjectCost AccountingCoreTopicStrategic & Lean Cost ManagementCore
The formula
LaTeX
Variables
- Reorder point (units)
- Average usage per period (units/period)
- Lead time (periods)
- Safety stock (units)
Sets the stock level at which a new order should be placed so it arrives before stock runs out.
Check yourself
PracticeCORE
A retailer sells an average of 25 units of a product per day. The supplier's lead time is 8 days, and the retailer holds a safety stock of 50 units. What is the reorder point?
Select an answer to check your understanding.