The formula
Reorder point = (average daily sales × lead time) + safety stock
Example: you sell 40 boxes a day, the supplier takes 7 days, and you keep 320 boxes as safety stock. Lead-time demand is 40 × 7 = 280 boxes, so you reorder when stock falls to 280 + 320 = 600 boxes.
Three ways to set safety stock
| Method | Formula | Use it when |
|---|---|---|
| Max vs average | (max daily sales × max lead time) − (avg daily sales × avg lead time) | You know your worst days and slowest deliveries |
| Service level | Z × σ(daily sales) × √lead time | You have daily sales history in Excel |
| Fixed | A number you choose, e.g. one week of sales | Quick rule of thumb |
Tips for distributors
- Items with expiry dates (medicines, food) need a smaller safety stock and more frequent orders, or the extra stock expires.
- Suppliers with unreliable delivery need more safety stock than their average lead time suggests. That’s what the “longest lead time” captures.
- Pair the reorder point with the EOQ calculator: the reorder point says when, EOQ says how much.