{"id":1786,"date":"2020-06-15T07:00:00","date_gmt":"2020-06-15T12:00:00","guid":{"rendered":"https:\/\/www.shipbob.com\/au\/blog\/reorder-quantity-formula\/"},"modified":"2025-09-26T16:04:41","modified_gmt":"2025-09-26T16:04:41","slug":"reorder-quantity-formula","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/au\/blog\/reorder-quantity-formula\/","title":{"rendered":"Reorder Quantity Formula: What It Is & How to Calculate It in 3 Steps"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is reorder quantity?<\/a><\/p>\n\n\n\n

What is the reorder quantity formula?<\/a><\/p>\n\n\n\n

Reorder quantity vs. reorder points<\/a><\/p>\n\n\n\n

Reorder quantity & reorder points: why you need both<\/a><\/p>\n\n\n\n

Reorder quantity formula: calculate reorder quantity in 3 steps<\/a><\/p>\n\n\n\n

Put ordering and inventory management on autopilot with ShipBob<\/a><\/p>\n\n\n\n

Conclusion<\/a><\/p>\n<\/div>\n\n\n\n

Inventory management<\/a> is one of the more complex and important aspects of running an ecommerce business. And the more SKUs you have, it\u2019s increasingly difficult to stay on top of stock levels.<\/p>\n\n\n\n

Without proper inventory management, you\u2019re at risk of running out of money and having too much inventory (that could potentially expire or become obsolete before you sell it), or running out of stock and losing customers.<\/p>\n\n\n\n

Having the right amount of product is a balancing act. That\u2019s why ecommerce businesses rely on the reorder quantity formula. Similar to an economic order quantity<\/a> (EOQ), you are trying to find the optimal order quantity to minimise logistics costs<\/a>, warehousing space, stockouts, and overstock costs.<\/p>\n\n\n\n

Let\u2019s dive into how understanding reorder quantity helps calculate the amount of inventory you need to buy in order to have the right stock levels.<\/p>\n\n\n\n

What is reorder quantity?<\/h2>\n\n\n\n

Reorder quantity is the total number of product units you request from a manufacturer or supplier on an inventory replenishment<\/a> purchase order. The exact amount should not be so high that you have too much capital tied up in inventory and subsequent warehousing<\/a> costs, but not so low that there\u2019s not enough safety stock and you risk selling out before you can get the next batch of inventory.<\/p>\n\n\n

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What is the reorder quantity formula?<\/h2>\n\n\n\n

The reorder quantity calculation is done by using a formula that multiplies average daily units sold by the average lead time:<\/p>\n\n\n\n

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Optimal Reorder Quantity for a SKU = Avg. Daily Units Sold  x Avg. Lead Time<\/p>\n<\/blockquote>\n\n\n\n

If your average daily sales for a SKU is 25 and the average manufacturing lead time<\/a> is 30 days (meaning, how long it takes from when you place a purchase order with your manufacturer to when you receive the product in your warehouse), then your reorder quantity is 750 units.<\/p>\n\n\n\n

However, if you are planning for any big promotions, thinking through holiday inventory preparations<\/a>, or working on demand forecasting<\/a> efforts, and you believe that your inventory velocity<\/a> will increase, you can increase your reorder quantity so that you don\u2019t run out of stock prematurely.<\/p>\n\n\n\n

If your inventory days on hand<\/a> metric is low, meaning you sell through inventory quickly so it\u2019s not sitting around your warehouse for long, then your reorder quantity and inventory turnover rate<\/a> will be high.<\/p>\n\n\n\n

Reorder quantity vs. reorder points<\/h2>\n\n\n\n

We occasionally see confusion between a reorder quantity and a reorder point. Reorder quantity is the number of products you order from a supplier, where the reorder point is the predetermined number of units you have left on hand at which you need to reorder more inventory from your supplier or you will run out.<\/p>\n\n\n\n

In other words, the reorder point is the quantity that will last you long enough until the reordered quantity arrives and becomes available in your ecommerce warehouse<\/a>.<\/p>\n\n\n\n

That said, the reorder point formula<\/a> is the sum of the total units needed to get you through the manufacturing lead time wait plus some safety stock<\/a>. If you foresee either delays with your manufacturer or your sales increasing, you should increase your reorder point so that you reorder inventory sooner.<\/p>\n\n\n\n

Reorder quantity & reorder points: why you need both<\/h2>\n\n\n\n

Reorder quantity and reorder points work in tandem to achieve optimal inventory management. Once you receive a reorder point alert, you can calculate the reorder quantity to determine the exact inventory replenishment needed in your fulfilment centre<\/a>.<\/p>\n\n\n\n

Never run out of stock<\/h3>\n\n\n\n

When products are out of stock, you risk losing customers. You can always offer backorders<\/a> or split shipments<\/a>, but those solutions don\u2019t provide a good customer experience.<\/p>\n\n\n\n

Reorder points help ensure a replenishment in time before running out, while reorder quantity ensures that you order enough to last until your next order. These equations and processes don\u2019t have to be manual, as inventory management software<\/a> can calculate reorder quantity, let you set reorder points, and provide inventory reporting<\/a>.<\/p>\n\n\n\n

When a SKU<\/a> hits its reorder point, there should be a notification that alerts you so that you know you need more inventory as it is the minimum threshold to prevent stockouts<\/a>.<\/p>\n\n\n\n

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\u201cShipBob helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we\u2019re alerted when a SKU has less than a certain quantity left. There is a lot of value in their technology.\u201d<\/em><\/p>\n\n\n\n

Oded Harth, CEO & Co-Founder of MDacne<\/a><\/p>\n<\/blockquote>\n\n\n

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Maximise cost-efficiency<\/h3>\n\n\n\n

By calculating reorder quantity and reorder points, you can keep just enough inventory to meet demand without tying up too much capital \u2014 also known as just-in-time inventory<\/a>, which is designed to cut costs, increase efficiency, and decrease waste by receiving goods when they are needed. If your stock levels are too high, you\u2019ll need to expand your inventory storage<\/a> capabilities or even find new warehouses.<\/p>\n\n\n\n

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\u201cFrom expanding into a second ShipBob fulfilment centre, we are excited to gain a 13% savings to our bottom line. With their software, we can see inventory reconciliations and easily view SKU velocity, transit times, and inventory distribution recommendations. ShipBob also provides the storage conditions we need to ensure our highest-quality food products are stored and delivered to our customers in a safe and effective manner.\u201d<\/em><\/p>\n\n\n\n

Pablo Gabatto, Business Operations Manager at Ample Foods<\/a><\/p>\n<\/blockquote>\n\n\n

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Simplify inventory management<\/h3>\n\n\n\n

With reorder points and reorder quantity, you know exactly how much to reorder and when you need to reorder. You can set up electronic notifications in your ecommerce inventory<\/a> management system, view real-time inventory tracking<\/a>, and view changes in demand over time.<\/p>\n\n\n

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Reorder quantity formula: calculate reorder quantity in 3 steps<\/h2>\n\n\n\n

The reorder quantity formula is simple: just Average Daily Usage x Average Lead Time. Let\u2019s look at how the formula works in detail.<\/p>\n\n\n\n

Step 1: Find your Average daily usage (ADU)<\/h3>\n\n\n\n

What is it?<\/strong> How many units of your product are sold per day.<\/p>\n\n\n\n

Thirty days is typically a reasonable timeframe, but it\u2019s dependent on the time of year. For example, if you need to order products in time for Black Friday, your ADU should be calculated based on the previous year\u2019s Black Friday ADU.<\/p>\n\n\n\n

Step 2: Find your Average lead time (ALT)<\/h3>\n\n\n\n

What is it?<\/strong> How long it takes from when a purchase order is placed with a supplier to when you receive the inventory (or when the replenishment is stowed in your fulfilment centre if you outsource fulfilment<\/a>). ALT is measured in days.<\/p>\n\n\n\n

If you reordered inventory on June 1, and that new inventory is ready to be used to fulfil customer orders on June 30, then your ALT is 29 days.<\/p>\n\n\n\n

Step 3: Calculate! Reorder Quantity = ADU x ALT<\/h3>\n\n\n\n

Once you multiply ADU and ALT, you\u2019ll know the amount of inventory you need to reorder. Let\u2019s look at an example of how to calculate reorder quantity for an individual product:<\/p>\n\n\n\n