Every business that holds stock faces the same tension: run out and you lose sales and disappoint customers; overstock and you freeze cash in inventory you didn't need yet. Reorder points are the simple tool that threads that needle — a trigger that tells you when to reorder, based on evidence rather than panic. Here's how to set them.
Understand the reorder point
A reorder point is the stock level at which you place a new order. The logic is straightforward: you want to reorder when you have just enough left to last through the time it takes the new stock to arrive, plus a buffer. Set it too high and you carry excess; too low and you run out before the replenishment lands. The right point keeps you supplied without overstocking.
Calculate it from demand and lead time
Two inputs drive it: how fast the item sells (demand) and how long it takes to restock (lead time). Roughly, the reorder point is the demand you'll see during the lead time — if you sell ten a week and restocking takes two weeks, you need to reorder by the time you're down to about twenty, so you don't run dry while waiting. Use your real sales history for the demand figure rather than a guess.
Add safety stock for the unexpected
Demand and lead times vary, so a buffer protects you when a week is busier than usual or a delivery runs late. Safety stock is that cushion — extra units beyond the bare calculation that absorb the variability. More variable items and less reliable suppliers warrant a bigger buffer; steady items with dependable suppliers need less. Safety stock is insurance against the normal unpredictability of real life.
Automate the trigger
Reorder points only work if someone acts when stock hits them, and watching every item by hand doesn't scale. The practical version has your system track stock against the reorder point and flag items that need reordering — or even prompt the order — so replenishment happens on time without anyone manually monitoring. The math sets the point; automation makes sure you actually act on it.
Set the point from real demand and lead time, add safety stock for the variability, and automate the trigger. That's how you stop running out of your best sellers and stop freezing cash in the rest — without guessing every time.