Selling & running a business
Reorder point and safety stock for small inventories
Estimate when to reorder and how much buffer is needed for demand and lead-time variation.
The useful formula
A practical safety-stock estimate is maximum daily demand × maximum lead time minus average daily demand × average lead time. Reorder point adds average lead-time demand to safety stock.
What belongs in the inputs
Use selling days consistently, remove exceptional stockouts, and review supplier lead times from received purchase orders rather than promises alone.
How to use the result
Compare the reorder point with stock on hand plus confirmed incoming stock. Recalculate when demand, suppliers, seasonality, or service targets change.
Make the right call
A reorder trigger is not a complete buying plan
Try average demand 10 units/day, maximum demand 15, average lead time 5 days, maximum lead time 8, stock on hand 50 and confirmed incoming 20. Use the same day basis throughout and receipts that can arrive in time.
| Check | Example or action | How to judge the result |
|---|---|---|
| Safety buffer | 15 × 8 − 10 × 5 = 70 units. | This maximum-versus-average method is a rough buffer, not a statistical service-level guarantee. Extreme outliers can inflate it. |
| Reorder trigger | 10 × 5 + 70 = 120 units; on hand + incoming = 70. | The tool’s estimated shortfall is 50 units. It does not subtract reservations or account for when each purchase order will arrive. |
| Order quantity | Review the 50-unit shortfall against pack size, minimum order, storage and demand until the next review. | The suggested quantity only tops up to this trigger. It is not an economic order quantity or a complete replenishment forecast. |