Reorder Point

Example

A SKU sells 42 units a day on average, with a 9-day supplier lead time and 120 units of safety stock:

reorder_point = (42 × 9) + 120 = 498 units

When on-hand plus on-order inventory drops to 498, a new order is placed — not when the shelf is already empty.

The safety stock component is where most of the judgment lives: too little, and ordinary demand variability causes stockouts; too much, and it’s cash sitting on a shelf. See Bullwhip Effect for how that judgment gets distorted moving upstream through a supply chain.