How to set an inventory reorder point

1. Start with the basic formula

A common starting point is:

Daily use means the typical amount sold, consumed, or issued in one day. Lead time means the time from placing a replenishment order until usable stock arrives. Safety stock is the extra buffer held for unexpectedly high demand or a late delivery.

Use matching units. If your team measures use per week, use lead time in weeks or convert both inputs to days. For supplies used irregularly, a weekly or monthly review may be more useful than forcing a daily estimate.

2. Work through an example

Suppose a workshop typically uses 5 boxes of a common fastener each day. Its supplier usually takes 6 days to deliver, and the team wants a buffer of 10 boxes.

Forty boxes is the starting review threshold. When available stock approaches that level, the team can check what is already on order and decide whether to replenish. This is a planning example, not a promise that the same threshold fits another business.

3. Choose a practical buffer

The buffer should reflect the uncertainty that matters to the business. A long or inconsistent supplier lead time, changing demand, or a costly stockout may justify a larger buffer. A perishable item, limited storage, or tight cash may favor a smaller one.

Use actual history when it is available: recent usage, supplier delivery times, seasonal changes, and times when an item was unavailable. If records are new, choose a simple temporary estimate, label it as an estimate, and review it after you have better information.

Do not treat the buffer as a universal percentage. The right value depends on the item’s risk, storage cost, replenishment options, and the service the business wants to provide.

4. Review the threshold over time

Revisit a reorder point when demand patterns change, supplier lead times shift, or a repeated stockout or excess shows that the estimate is off. Record why the threshold changed so the next review has context.

Keep thresholds item-specific when use or lead time varies. A box of commonly used screws, a seasonal product, and a replacement motor may all need different methods. Some low-value supplies may be managed with a simple periodic check instead of a carefully calculated trigger.

5. Know what the number does not tell you

A reorder point answers “when should we review replenishment?” It does not determine how much to order. Pack sizes, minimum order quantities, cash, storage, supplier availability, and items already on order affect the purchase decision.

A threshold is only as dependable as its quantity records. Count critical items, record receipts and use consistently, and account for stock that is damaged, reserved, or in transit according to the process your business follows. Never assume an on-hand balance includes an incoming order unless your system explicitly records it.

For an introduction to the same basic variables, see this inventory management guide from QuickBooks. Treat example values as illustrations and set thresholds using your own usage and delivery history.