A reorder point is the stock level at which you place the next purchase order, so the new stock arrives before the shelf is empty. Set it from your daily sales, your supplier's lead time and a safety cushion, then review it every month. This guide shows the arithmetic with a worked example and how to read the Replenishment report in Aicountly Inventory.
Why a reorder point beats "order when it looks low"
Most small businesses reorder by feel: someone notices a half-empty shelf and calls the supplier. That works until a busy week, a late truck or a staff change. The cost shows up in two places. A stock-out loses a sale and sometimes a customer. Over-ordering "just to be safe" locks cash in goods that sit for months.
A reorder point replaces the feeling with a number. When available stock falls to that number, you order. It is not a promise of perfection, but it makes the decision repeatable, so it does not depend on who is in the store that day.
The four numbers you need
- Daily demand: how many units you usually sell or issue in a day. Use a recent period, such as the last 30 to 90 days, and ignore one-off bulk orders.
- Lead time: the days between placing an order and having the goods ready to sell, including your own receiving and checking time.
- Safety stock: the extra units you keep to cover a late delivery or a sudden spike in demand.
- Reorder quantity: how much you buy each time. It depends on supplier minimums, pack sizes, storage space and cash.
The formula, with a worked example
The usual rule of thumb is:
Reorder point = (daily demand × lead time in days) + safety stock
Suppose you sell 20 units of an item a day, your supplier takes 7 days to deliver, and you want 60 units as a cushion.
StepWorkingResult Demand during lead time20 × 7140 units Add safety stock140 + 60200 units Reorder point 200 unitsWhen available stock reaches 200 units you place the order. If everything goes to plan, you sell about 140 units while waiting and still hold roughly 60 when the delivery arrives.
Count only stock you can actually sell. Units already promised to customers, or held back for damage or quality checks, are not available, so subtract them first.
How to choose safety stock
There is no single right answer, but three questions help:
- How reliable is the supplier? If deliveries are often a few days late, keep a larger cushion for that item.
- How uneven is your demand? Items that sell in bursts need more cushion than items that sell steadily.
- What does a stock-out cost? A fast-moving item that brings customers in deserves more safety stock than a slow accessory.
Start modestly, watch for a quarter, and adjust. If you never come close to the safety level, it may be too high and tying up cash.
Setting these rules on an item in Aicountly Inventory
In the Aicountly Inventory code, each item carries its own stock rules: minimum stock, maximum stock, reorder point, reorder quantity, safety stock and supplier lead time in days. The item form describes these as the item's "tracking and reorder rules", and a bulk edit screen lets you change minimum, maximum, reorder point and reorder quantity for many items at once, which saves time when you first load your catalogue.
Begin with your fast-moving items. A reorder point on ten items that matter is worth more than half-filled values on a thousand items you rarely touch. If you are adding items for the first time, the guide to adding a new item in Inventory walks through the form.
Reading the Replenishment report
Inventory has a Replenishment report under Reports. It lists items at or below their reorder point once reservations, pending outs and expected receipts are taken into account, with a suggested order quantity.
Useful things to know about it:
- The columns include On hand, Available, Expected in, Pending out and Projected, followed by Reorder at, a Reorder? flag, a Why column and a Suggest quantity. Suggested value and a Needed by date are also shown.
- Min and Max columns are available but hidden by default.
- The "Only items to reorder" filter is switched on by default, so you see the shortlist first. You can turn it off to see every item, or filter by warehouse, item group and stock category.
- There is an "As at" date. For a past financial year the report reads that year's closing position, and today's reservations and pending movements are not applied.
The key figure is Projected. Looking at on-hand stock alone can mislead you: an item with plenty on the shelf may already be promised to customers, and an item that looks low may have a confirmed receipt on the way. Projected brings those together.
Days of cover and the planning dashboard
A static reorder point does not notice when demand changes. Inventory's Replenishment planning dashboard adds a demand-based view. Its logic in the code is clear: days of cover is available stock divided by daily demand, and when there is no recent demand it shows "No recent demand" instead of an impossible number.
The suggested quantity on the dashboard works as: forecast demand = daily demand × (lead time + horizon days); suggested = forecast demand + safety stock − (available + inbound), never below zero. Cover is compared with the lead time: if cover is at or below the lead time, the item runs out before a replacement can arrive. If lead time is missing on the item, the dashboard says so rather than guessing, and a Data readiness panel flags how many items lack lead times, safety stock or reorder points. That list is a handy to-do for cleaning up your item master.
Check surplus before you buy
Before raising a purchase order, ask whether another warehouse is sitting on surplus. The dashboard has a "Rebalance before purchase" section for exactly this, and it only counts surplus above what the source warehouse needs for its own lead-time demand and safety stock. Moving stock costs less than buying it, and it avoids the opposite problem of over-stocking. See also this note on moving surplus stock instead of buying.
A monthly routine that takes thirty minutes
- Open the Replenishment report with "Only items to reorder" on and note what is flagged.
- Confirm the numbers by checking available stock; the guide to checking available stock helps.
- Raise purchase orders for flagged items, using the suggested quantity as a starting point and adjusting for supplier pack sizes.
- Review the five items that nearly ran out. Was the lead time longer than you assumed? Raise the safety stock.
- Review the five slowest items. If cover is far above what demand needs, lower the maximum and stop reordering.
- Once a quarter, reconcile counts with the books, as described in physical stock verification and reconciling stock with books.
Key takeaways
- Reorder point = (daily demand × lead time) + safety stock. Recalculate when demand or lead time changes.
- Use available stock, not on-hand stock, and take expected receipts into account.
- Start with the items that matter most; do not try to configure everything at once.
- Check your other warehouses for surplus before buying.
- Review misses and slow movers every month and adjust the numbers.
If you track stock across items and warehouses, Aicountly Inventory keeps reorder rules, availability and the Replenishment report in one place, so the monthly review starts from the same numbers every time.
