Reorder Points & Safety Stock
The reorder point tells you WHEN to order. Safety stock tells you HOW MUCH buffer to keep. Get these right and stockouts become rare while capital is optimized.
The Complete Formula
Reorder Point = (Lead Time × Average Daily Sales) + Safety Stock
This answers: "At what inventory level should I place an order?"
Step 1: Find Your Average Daily Sales
Method A: From recent data
Formula: Total sales last 30 days ÷ 30 = Average daily sales
Example: 300 units ÷ 30 days = 10 units/day
Method B: From yearly data (for stable products)
Formula: Annual sales ÷ 365 = Average daily sales
Example: 3,650 units ÷ 365 days = 10 units/day
For seasonal products:
Use last 3 months ONLY — don't use yearly average
Example (Winter Jacket in December):
├─ Oct-Dec sales: 2,400 units
├─ Days: 90 days
└─ Average: 26.7 units/day (much higher than yearly 10/day!)
Step 2: Get Your Lead Time
Lead time = Days from ordering to receiving
How to find it:
├─ Check supplier contract/website
├─ Ask supplier directly
├─ Review past orders (actual delivery dates)
├─ Add buffer for realistic estimate
Example:
├─ Supplier promises: 30 days
├─ Your experience: Usually 32-35 days
├─ Lead time to use: 35 days (realistic, not optimistic)
Common lead times:
- Domestic supplier: 7-14 days
- Regional (Europe): 14-30 days
- Overseas (Asia): 30-60 days
- Always add 3-5 days buffer for actual conditions
Step 3: Understand Lead Time Stock
Lead time stock = How much you'll sell while waiting for new inventory
Formula: Lead Time (days) × Average Daily Sales
Example (Blue T-Shirt):
├─ Lead time: 30 days
├─ Average daily sales: 10 units
├─ Lead time stock: 30 × 10 = 300 units
└─ Translation: "I'll sell 300 units while waiting for delivery"
Why this matters:
Mistake: You have 100 units, order 100 more, think you're covered
Reality:
├─ You have: 100 units
├─ You sell: 10/day × 30 days = 300 units during lead time
├─ Day 3: You run out (100 - 300 = stockout!)
├─ Day 30: New shipment arrives (but too late)
└─ Problem: Didn't account for sales DURING the wait
Fix: Order 300 units, so when new stock arrives you have enough
Step 4: Calculate Safety Stock
Safety stock = Your insurance policy buffer
Formula:
Safety Stock = Average Daily Sales × Safety Stock Days
Safety stock days by grade:
Grade A (High priority): 12-15 days
Grade B (Medium priority): 8-10 days
Grade C (Low priority): 3-5 days
Why different grades?
Grade A (Winter Jacket, 50% of revenue):
├─ Stockout cost: Very high (lose major sales)
├─ Safety days: 14 days
├─ Safety stock: 5 units/day × 14 = 70 units
Grade B (Blue T-Shirt, 20% of revenue):
├─ Stockout cost: Medium (acceptable occasionally)
├─ Safety days: 9 days
├─ Safety stock: 10 units/day × 9 = 90 units
Grade C (Niche Item, 2% of revenue):
├─ Stockout cost: Low (minimal impact)
├─ Safety days: 4 days
├─ Safety stock: 0.5 units/day × 4 = 2 units
Step 5: Calculate Your Reorder Point
Now put it all together:
Reorder Point = (Lead Time × Daily Sales) + Safety Stock
= Lead Time Stock + Safety Stock
Real Example: Blue T-Shirt (Grade B)
Data:
├─ Average daily sales: 10 units/day
├─ Lead time: 30 days
├─ Grade: B (medium priority)
├─ Safety stock days: 9 days
Calculation:
├─ Lead time stock: 30 × 10 = 300 units
├─ Safety stock: 10 × 9 = 90 units
└─ REORDER POINT: 300 + 90 = 390 units
What it means:
When inventory hits 390 units:
├─ Place order immediately
├─ You'll sell ~300 units during 30-day lead time
├─ You'll have ~90 units left (your safety buffer)
└─ New order arrives when inventory ≈ 90 units
Real Example: Grade A Winter Jacket
Data:
├─ Average daily sales: 5 units/day
├─ Lead time: 45 days (overseas supplier)
├─ Grade: A (high priority)
├─ Safety stock days: 14 days
Calculation:
├─ Lead time stock: 45 × 5 = 225 units
├─ Safety stock: 5 × 14 = 70 units
└─ REORDER POINT: 225 + 70 = 295 units
Real Example: Grade C Niche Item
Data:
├─ Average daily sales: 0.5 units/day
├─ Lead time: 30 days
├─ Grade: C (low priority)
├─ Safety stock days: 4 days
Calculation:
├─ Lead time stock: 30 × 0.5 = 15 units
├─ Safety stock: 0.5 × 4 = 2 units
└─ REORDER POINT: 15 + 2 = 17 units
Understanding Safety Stock
Why Safety Stock?
Safety stock protects against unpredictable events:
1. Demand Spikes
Normal: 10 units/day
Spike: 15 units/day (+50%)
Buffer needed: 5 extra/day × 10 days = 50 units
2. Supplier Delays
Promised lead time: 30 days
Actual: 40 days (+10 days)
Buffer needed: 10 days × 10 units = 100 units
3. Forecast Errors
Forecast: 300 units
Actual sales: 400 units
Buffer needed: 100 units
4. Quality Issues
Supplier ships 100 units, 10 defective
Safety stock covers the loss
5. Unexpected Promotion
Sales spike 25% above normal
Buffer absorbs the surge
The Capital vs. Service Tradeoff
Every safety stock decision is a trade-off:
Higher Safety Stock (15 days):
Inventory value: 10 units/day × 15 days × €50/unit = €7,500
Carrying cost annually: €7,500 × 15% = €1,125/year
Benefits:
├─ 99%+ service level (almost never stockout)
├─ Absorbs demand spikes
├─ Handles supplier delays
└─ Better customer satisfaction
Costs:
├─ €1,125/year in carrying costs
├─ More warehouse space needed
└─ Risk if product becomes obsolete
Lower Safety Stock (5 days):
Inventory value: 10 units/day × 5 days × €50/unit = €2,500
Carrying cost annually: €2,500 × 15% = €375/year
Benefits:
├─ Lower carrying costs (€750 savings)
├─ Less warehouse space
├─ Faster inventory turnover
└─ Less waste if demand drops
Risks:
├─ Higher stockout probability
├─ Can't absorb demand spikes
├─ Vulnerable to supplier delays
└─ Potential lost sales
Your decision: Match safety stock to product importance (use Grade A/B/C)
Getting Safety Stock Right
Too low:
Safety stock: 2 days (20 units)
Reality: Unexpected 20-unit spike in demand
Result: Stockout on Day 1 ✗
Impact: Lost sale, customer buys elsewhere
Too high:
Safety stock: 20 days (200 units)
Reality: Stable 10 units/day
Cost: 200 units × €50 × 15% carrying = €1,500/year
Result: Wasted capital ✗
Alternative: Same €1,500 could fund 3 other priorities
Just right:
Safety stock: 9 days (90 units)
Reality: Handles normal spikes (±25%)
Cost: 90 units × €50 × 15% = €675/year
Result: Rare stockouts, acceptable cost ✓
Service level: ~95% fill rate (5% occasional stockouts)
Running Low Threshold (Your Alert Point)
In Synplex, you see when products hit "Running Low" status.
This is calculated as:
Running Low Threshold = Lead Time + Safety Stock Days + (Optional Margin)
Example (Blue T-Shirt):
├─ Lead time: 30 days
├─ Safety stock days: 9 days
├─ Optional margin: 2 days (extra buffer)
└─ Running Low Threshold: 41 days
Meaning:
├─ At 41 days of inventory: Synplex alerts "Running Low"
├─ On-hand: 41 × 10 units = 410 units
├─ You should order now
Synplex shows this as a status:
Product Status:
├─ Healthy: Inventory is in good range
├─ Running Low: Hit your reorder point → ORDER NOW
├─ Stock Gap: Gap between depletion & arrival (review lead time)
├─ Overstocked: Above maximum (hold orders)
├─ Out of Stock: Zero inventory (emergency)
When to Recalculate
Recalculate immediately (or within 1 week) if:
✓ Average daily sales changed ±20%
→ New demand pattern, seasonal shift, growth
✓ Lead time changed
→ New supplier, moved warehouses, customs delays
→ This impacts reorder point directly!
✓ Product grade changed
→ Grade C → Grade B due to growth
→ Increase safety stock and reorder point
✓ Multiple stockouts in a month (for one product)
→ Safety stock too low
→ Recalculate with higher safety days
Recalculate quarterly (standard practice):
├─ Review demand trends
├─ Verify lead times with suppliers
├─ Assess if grade assignments are still accurate
└─ Adjust policies accordingly
Multi-Location Reorder Points
Each location has its own demand, so different reorder points:
Product: Blue T-Shirt
Berlin warehouse (60% of demand):
├─ Average daily: 6 units
├─ Lead time: 30 days
├─ Safety: 9 days
└─ REORDER POINT: (30 × 6) + (6 × 9) = 234 units
Munich store (25% of demand):
├─ Average daily: 2.5 units
├─ Lead time: 30 days
├─ Safety: 9 days
└─ REORDER POINT: (30 × 2.5) + (2.5 × 9) = 97 units
Hamburg store (15% of demand):
├─ Average daily: 1.5 units
├─ Lead time: 30 days
├─ Safety: 9 days
└─ REORDER POINT: (30 × 1.5) + (1.5 × 9) = 58 units
Action:
Each location orders independently when hits their reorder point
Total company reorder points: 234 + 97 + 58 = 389 units
FAQ
Q: Should I adjust reorder point for lead time variability?
A: Yes. If lead time ranges 30-40 days, use 40 days. Better to over-order than stockout.
Q: What if my lead time is inconsistent (20-50 days)?
A: Use the longer realistic estimate (50 days) in calculation. Add higher safety stock for unreliable suppliers.
Q: How do I handle seasonal changes in reorder points?
A: Recalculate before each season. Winter jacket reorder point in October (high demand) is different from July (low demand).
Q: Can I have different reorder points per location?
A: Yes! Recommended. Each warehouse has different demand, so different reorder points make sense.
Q: What if demand is zero (new product)?
A: Use conservative estimate (safer to over-stock initially). Update forecast after 2 weeks of real data.
Q: How often should I recalculate?
A: Minimum quarterly. Monthly if demand is volatile. Immediately if lead time changes.
Next Steps
- Pick one product
- Find: average daily sales (last 30 days or 3 months if seasonal)
- Find: lead time (actual, realistic with buffer)
- Choose: safety stock days (based on grade A/B/C)
- Calculate: reorder point (lead time stock + safety stock)
- Implement in Synplex (Insight Settings → Stock Buffer)
- Monitor for 2 weeks — Is it triggering as expected?
- Adjust if stockouts occur or inventory piles up
Related Articles
- Policy Fundamentals — Overview of policies
- ABC Rules & Prioritization — Grading by importance
- Min-Max Inventory Levels — Setting maximum levels
Questions?
Contact support@synplex.io for help calculating your reorder points.