Reorder Point + Safety Stock Calculator

The short answer

Reorder point = (average daily demand x lead time in days) + safety stock. Safety stock = Z x standard deviation of demand over the lead time, where Z is the service factor for your target service level: 1.28 for 90%, 1.65 for 95%, and 2.33 for 99%.

Worked example

A SKU sells 40 units a day. Your supplier takes 12 days. Daily demand varies with a standard deviation of 9 units, and you want a 95% service level. Demand over the lead time is 40 x 12 = 480 units. The standard deviation over the lead time is 9 x the square root of 12, or about 31 units. Safety stock is 1.65 x 31 = 52 units. The reorder point is 480 + 52 = 532 units. When on-hand plus already-ordered stock drops to 532, raise the purchase order.

Why safety stock is a service-level decision, not a gut feel

The reorder point has two parts, and only one of them is arithmetic. Lead-time demand is fixed by your sales rate and your supplier's lead time. Safety stock is the part you choose, and what you are choosing is how often you are willing to run out.

Moving from a 95% to a 99% service level on the example above raises safety stock from 52 units to 72 units. That is a 38% increase in buffer stock to remove four percentage points of stockout risk. Whether that trade is worth making depends on the margin of the SKU and the cost of disappointing a customer, which is why the calculator shows the number at several service levels rather than picking one for you.

The variance term is what most spreadsheets get wrong

Standard deviation of demand does not scale linearly across the lead time. It scales with the square root of the lead time, which is why a 12-day lead time multiplies daily variability by about 3.46, not by 12. Treating it linearly inflates safety stock by roughly three and a half times on this example and ties up cash that did nothing for service.

If your supplier's lead time is itself unreliable, that variability belongs in the calculation too. A supplier who averages 12 days but ranges from 8 to 20 needs more buffer than one who reliably delivers on day 12, even though the averages match.

When to recalculate

A reorder point is a snapshot of demand and lead time at the moment you computed it. Both drift. Recalculate when a supplier changes lead time, when a SKU shifts season, and after any promotion that distorted the demand history you are averaging over.

Reviewing reorder points once a quarter catches most of the drift. Fast-moving or seasonal SKUs are worth looking at monthly.

Frequently asked questions

What is the reorder point formula?

Reorder point = (average daily demand x lead time in days) + safety stock. Safety stock = Z x standard deviation of demand over the lead time, where Z is 1.28 for a 90% service level, 1.65 for 95%, and 2.33 for 99%.

How do I calculate safety stock?

Multiply the service factor Z for your target service level by the standard deviation of demand over the lead time. For a 95% service level, Z is 1.65. If daily demand varies by 9 units and the lead time is 12 days, the standard deviation over the lead time is 9 x the square root of 12, about 31 units, so safety stock is 1.65 x 31 = 52 units.

Should the reorder point include stock already on order?

Yes. Compare the reorder point against your inventory position, which is on-hand stock plus stock already on order minus any backorders. Comparing it against on-hand alone will make you order again before the first purchase order has arrived.

What service level should I use?

95% is a common default for most SKUs. Raise it for products where a stockout loses the customer rather than delaying the sale, and lower it for slow movers where holding buffer stock costs more than the occasional missed order.