{"id":538,"date":"2023-10-16T18:29:56","date_gmt":"2023-10-16T18:29:56","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/reorder-point-formula\/"},"modified":"2025-07-21T22:51:13","modified_gmt":"2025-07-21T22:51:13","slug":"reorder-point-formula","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/reorder-point-formula\/","title":{"rendered":"How to Calculate Reorder Points with the ROP Formula"},"content":{"rendered":"\n

Table of Contents<\/p>

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

What is a reorder point (ROP)?<\/a><\/p>\n\n\n\n

Why is the reorder point important?<\/a><\/p>\n\n\n\n

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

How to calculate reorder points<\/a><\/p>\n\n\n\n

ShipBob keeps reorder points simple<\/a><\/p>\n\n\n\n

Get started with ShipBob<\/a><\/p>\n\n\n\n

Reorder point formula FAQs<\/a><\/p>\n<\/div>\n\n\n\n

Maintaining proper inventory levels is an elegant dance that must balance consumer demand and supplier reliability. Storing too much inventory eats up your budget in terms of warehousing<\/a> costs and available capital, but you also need enough inventory to account for unexpected demand or supply problems.<\/p>\n\n\n\n

How do you strike the middle ground? By calculating reorder points for each product.<\/p>\n\n\n\n

What is a reorder point (ROP)?<\/h2><\/div>
\n

A reorder point (ROP) is the level at which inventory needs to be replenished so it doesn’t drop below a certain threshold where it is at risk of going out of stock.<\/p>\n\n\n\n

Implementing reorder points allows you to trigger a new order so you don’t get close to running out of inventory. Setting accurate reorder points allows businesses to avoid having products out of stock while waiting for new inventory. By doing this, you ensure customers get their orders on time and have a positive brand experience. <\/p>\n\n\n\n

Inventory management software will track your inventory and alert you when you reach your SOP. For example, here is what setting up reorder points in the ShipBob dashboard looks like. <\/p>\n\n\n

\n
\"\"<\/figure>\n<\/div><\/div><\/section>\n\n\n\n

Why is the reorder point important?<\/h2><\/div>
\n

Reorder point calculation ensures that you don\u2019t fall behind on your next batch of inventory.<\/span> With an accurate reorder point for each SKU<\/a>, you\u2019ll always have enough stock on hand to satisfy customer demand \u2014 without overstocking and tying up excess capital in inventory.<\/p>\n\n\n\n

Minimise costs<\/h3>\n\n\n\n

Storing more inventory than what can be sold in a timely fashion is not a productive use of capital. Reorder points provide businesses with greater financial flexibility by allowing them to keep a minimum amount of inventory on hand without running out of product.<\/span><\/p>\n\n\n\n

Conversely, it can be costly to replenish inventory when you completely run out. If you have to expedite getting product from your manufacturer, you’ll likely incur additional fees.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Minimise stockouts<\/h3>\n\n\n\n

Too much inventory is expensive, but too little inventory can result in stockouts, which are harmful for your business. When orders are delayed or canceled because you don’t have the appropriate stock on-hand, you can lose customers and your reputation can suffer. <\/span><\/p>\n\n\n\n

Having visibility into your inventory and set reorder points helps you know when to replenish inventory to prevent stockouts before it\u2019s too late.<\/span> Using an inventory management system<\/a> can provide a holistic view of your inventory and keep track of reorder points for your SKUs. <\/p>\n\n\n\n

\"A<\/figure>\n\n\n\n

Better forecasting<\/h3>\n\n\n\n

Calculating reorder points goes hand in hand with having a clear idea of purchasing trends over a given time period. You should look into customer demand so you can understand when customers are more likely to purchase your products and you can forecast demand<\/a> correctly. For example, if you sell sunglasses, you’re likely to see a peak in demand in the spring and summer, opposed to a ski goggles brand that will see a surge in demand in the fall and winter. <\/p>\n\n\n\n

When you use data to forecast demand, you can set informed reorder points so you aren’t left without inventory during times of increased customer demand. The more you calculate ROP for each product, the more accurately you can forecast demand in the future and ensure you use the reorder quantity formula<\/a> correctly.<\/p>\n\n\n\n

\"A<\/figure>\n<\/div><\/section>\n\n\n\n

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

The reorder point formula is as follows: <\/span><\/p>\n\n\n\n

\n

Reorder Point (ROP) = Demand During Lead Time + Safety Stock<\/strong><\/span><\/p>\n<\/blockquote>\n\n\n\n

Reorder point formula is used by businesses to calculate the minimum amount of inventory needed to order more products so they can avoid running out of inventory. <\/span><\/p>\n<\/div><\/section>\n\n\n\n

How to calculate reorder points<\/h2><\/div>
\n

So now you know the reorder point formula, but you might be wondering – what is demand during lead time? Or what about safety stock? In this section we break down ROP and tell you exactly how to calculate it.<\/span><\/p>\n\n\n\n

Average daily sales <\/h3>\n\n\n\n

First you’ll want to calculate your average daily sales (which can also known as average daily usage) to understand how much of a certain product you’re selling per day. You’ll first choose a period of time to examine (e.g. 1 week, 1 month, etc). Then you’ll look up how many SKUs you sold during that amount of time and divide it by the number of days. To calculate this, you’ll use this formula: <\/p>\n\n\n\n

\n

Average Daily Sales = Total Sales \/ Number of Days<\/strong><\/p>\n<\/blockquote>\n\n\n\n

<\/p>\n\n\n\n

Demand during lead time<\/h3>\n\n\n\n

Lead time<\/a> is the number of days between when you place a purchase order with your manufacturer or supplier for a product and when you receive the product. Your lead time for getting new stock will be longer if your supplier is overseas as compared to a domestic or in-house production facility.<\/p>\n\n\n\n

To find your average demand during lead time, just multiply the lead time (in days) for a product by the average number of units sold daily:<\/p>\n\n\n\n

\n

Lead Time Demand = Lead Time x Average Daily Sales<\/strong><\/p>\n<\/blockquote>\n\n\n\n

Safety stock<\/h3>\n\n\n\n

Safety stock<\/a>, as the name suggests, is the extra \u201cjust in case\u201d inventory<\/a> you keep on hand to anticipate variability in demand or supply.<\/p>\n\n\n\n

It’s important to keep adequate safety stock on-hand as demand can increase suddenly or problems with a supplier can prevent you from restocking inventory<\/a> as quickly as you expected. <\/p>\n\n\n\n

\n

Safety Stock Level = (Max Daily Orders x Max Lead Time) \u2013 (Average Daily Orders x Average Lead Time)<\/strong><\/p>\n<\/blockquote>\n\n\n\n

To find the proper safety stock level for a given product:<\/p>\n\n\n\n