Reorder Point Formula: How Distributors Decide When to Reorder

Every distributor has the same morning question: which SKUs need a purchase order today? The reorder point is the simplest honest answer. It is the stock level at which you place a new order so the shelf doesn't empty before the delivery arrives.

The reorder point formula

Reorder Point = (Average Daily Demand × Supplier Lead Time) + Safety Stock

The first half is the stock you expect to sell while you wait for the supplier. The second half, safety stock, is the buffer for the days when demand runs hot or the supplier runs late.

Step 1: Average daily demand from real outbound movement

Use what actually left the warehouse, not a number someone typed into a planning sheet. A common window is the trailing 90 days: add up every unit sold (and every unit transferred out to another warehouse, because that also empties this shelf) and divide by 90.

Average Daily Demand = units shipped out in the last 90 days ÷ 90

If nothing moved in 90 days, don't call demand zero and move on. That SKU has no recent demand, which is a different problem (dead stock) with a different fix.

Step 2: Supplier lead time

Lead time is the number of days from placing the order to having stock you can sell. Use the supplier's real recent lead time if you track it. A contract lead time that the supplier routinely misses will make every reorder point too low. If you don't know a supplier's lead time yet, record it as unknown rather than guessing quietly — a guessed lead time looks exactly like a real one in a spreadsheet.

Step 3: Safety stock

Safety stock has its own article: the safety stock formula, simple and statistical. For the example below we use the simple rule of covering half the lead time.

Worked example

Illustrative numbers: a SKU shipped 1,890 units from one warehouse in the last 90 days, and its supplier delivers in 8 days.

Average Daily Demand = 1,890 ÷ 90 = 21 units/day
Demand during lead time = 21 × 8 = 168 units
Safety Stock = 21 × (8 × 50%) = 84 units
Reorder Point = 168 + 84 = 252 units

When available stock at that warehouse drops to 252 units or below, it is time to order.

Where a flat reorder point falls short

• It ignores what's already on order. If a purchase order lands in three days, you may not need another one. Count inbound POs — but only the ones arriving before you would run out.
• It is per warehouse. A SKU can be short in one location and overstocked in another; the answer may be a transfer, not a new order. See reorder, expedite or transfer.
• It assumes demand is steady. Seasonal and lumpy SKUs need a forecast, not a 90-day average. See demand forecasting for distributors.

How Supply Chain Manager uses it

Supply Chain Manager calculates the reorder point for every SKU at every warehouse from your own transactions and supplier lead times, then walks stock forward day by day, crediting each inbound PO on the day it is due, to find the day you would actually run out. Each alert shows the numbers behind it. To see it on sample data, open the live demo.