1. Why Reorder Points Matter
The Reorder Point (ROP) is one of the simplest and most practical inventory control methods used in warehouses and small businesses.
It tells you when to place the next order so that stock never reaches zero.
A correctly calculated ROP prevents:
- stockouts and lost sales
- excessive emergency orders
- production delays
- unnecessary safety stock
- stress on warehouse staff
This guide explains the formula, how to apply it, and how to avoid common mistakes in SME environments.
2. The Basic Reorder Point Formula
The classic formula is:
Reorder Point = Average Daily Demand × Lead Time
Where:
- Average Daily Demand = how much you sell or use per day
- Lead Time = time between placing an order and receiving the goods
This formula ensures that stock reaches zero exactly when the new delivery arrives.
3. Reorder Point with Safety Stock
In real life, demand and lead time are never perfectly stable.
To avoid stockouts, we add safety stock:
ROP = (Average Daily Demand × Lead Time) + Safety Stock
Safety stock protects you from:
- delivery delays
- sudden demand increases
- quality issues in incoming goods
- supplier inconsistencies
4. Worked Examples
Example 1: Simple ROP
- Average daily demand: 10 units
- Lead time: 5 days
ROP = 10 × 5 = 50 units
Order when stock reaches 50 units.
Example 2: ROP with Safety Stock
- Average daily demand: 40 units
- Lead time: 7 days
- Safety stock: 80 units
ROP = (40 × 7) + 80 = 360 units
Order at 360 units to avoid running out.
5. FAQ
Is safety stock always required?
Yes, unless demand and lead time are completely stable (rare in SMEs).
What causes stockouts even when ROP is used?
Incorrect lead time or outdated demand values.
How often should ROP be recalculated?
At least quarterly, or after major demand changes.
Does ROP work without a WMS?
Yes — it’s one of the simplest manual inventory control methods.
6. Common Mistakes in SMEs
✔ using outdated demand averages
✔ ignoring supplier lead time variability
✔ setting safety stock too low
✔ not checking seasonality
✔ recalculating ROP only once per year
✔ ordering based on intuition instead of data
Fixing these small issues drastically improves stock availability.
7. Best Practices
- use 3–6 months of data for daily demand
- update lead times monthly
- separate fast-moving (A) from slow-moving (C) items
- increase safety stock for critical products
- reduce safety stock for special-order or low-rotation items
- use the web-app to generate ROP consistently