Definition
What is Reorder Point?
The inventory level at which a new order must be placed to avoid a stockout.
The reorder point is the stock level that covers expected demand during supplier lead time, plus a safety buffer. Order when inventory hits this level and the replenishment should arrive just before stock runs out. Setting it too low causes stockouts and lost revenue; too high ties up cash in excess inventory.
Formula
Reorder Point = (Average Daily Sales × Lead Time in Days) + Safety StockExample
Selling 12 units/day with a 14-day lead time and 50 units of safety stock: reorder at (12 × 14) + 50 = 218 units.