The formulas
- Safety stock = Z × daily sales variation × √lead time (days)
- Lead-time demand = average daily sales × lead time
- Reorder point = lead-time demand + safety stock
Z is set by how sure you want to be of not running out: 1.65 for 95%, 2.33 for 99%.
Worked example
You sell 20 units a day on average, daily sales vary by about 5 units, and lead time is 16 days.
Safety stock at 95% = 1.65 × 5 × √16 = 33 units. Lead-time demand = 20 × 16 = 320. Reorder point = 353 units.
With 500 units on hand, you should place your next order in about 7 days. At a 99% service level, safety stock rises to 47 and the reorder point to 367.
Getting the inputs right
- Lead time should include everything: production, freight, customs and warehouse check-in — not just shipping.
- Sales variation: use a spreadsheet’s STDEV of your daily unit sales over the last 30–90 days.
- Service level: 95% is a common balance; bestsellers often justify 97.5–99%.
Check your numbers
Enter your sales and lead time in the Reorder Point Calculator. Plan extra stock for seasonal peaks and promotions — the formula assumes steady demand.