Calculating Reorder Points using ROP Formula - ChicagoShipper

Maintaining proper inventory levels is an elegant dance that must balance consumer demand and supplier reliability. Keeping too much inventory eats up your budget in terms of warehousing costs and available capital, but you also need enough inventory to account for unexpected demand or supply problems. 

How do you find a compromise? Calculate the reorder points for each product. 

Reorder Point (ROP) Definition 

A reorder point (ROP) is the minimum stock or inventory level for a particular product, and when reached, triggers a backorder for more inventory. When calculating reorder points for different SKUs, the lead time for restocking is taken into account so that the inventory level does not reach zero. By setting accurate reorder points, companies can prevent product shortages while waiting for new inventory. 

The formula for Reorder Point 

The reorder point formula is a formula used by companies to calculate the minimum stock required to order more products to avoid being out of stock. The formula for the reorder point is: 

Reorder Point (ROP) = Demand during lead time + safety stock 

Importance of Reorder Point 

Reorder points keep you from being late for your next inventory batch. The exact reorder point for each SKU ensures that you always have enough inventory to meet your customers’ demands without binding extra capital to your inventory. 

  • Reduce Costs 

Storing extra stock than what may be offered in a well-timed style isn’t always an effective use of capital. Reorder points offer groups extra monetary flexibility with the aid of using letting them maintain the minimal quantity of stock accessible without strolling out of products. 

  • Reduce Out-of-Stocks 

Too much inventory can be costly, but too little inventory can lead to out-of-stock situations and can have a negative impact on your business. Orders can be delayed or canceled, your business can lose customers, or your reputation can be compromised. Reorder points help you avoid running out of stock from the beginning. 

  • Greater Forecasting 

Calculating reorder factors is going hand in hand with having a clean concept of buying trends over a given time period. The greater you calculate ROP for every product, the greater appropriately you may forecast call for withinside the destiny and make sure you operate the reorder amount method correctly. 

Reorder Point Formula 

E-commerce companies can use an easy system to calculate reorder factors for every product. This is the reorder factor system: 

Reorder Point (ROP) = Demand during lead time + safety stock 

Calculating Reorder Points 

Now that you know the formula, what is the demand during the lead time? How about safety inventory? This section describes how to classify ROPs and calculate them accurately. 

  • Demand Throughout Lead Time 

Lead time is the number of days between ordering a product from the manufacturer or supplier  and receiving the product. If the supplier is located overseas, the lead time will be longer than that of a domestic or in-house manufacturing facility. 

To determine demand during lead times, multiply the product lead times (days) by the average number of units sold per day: 

Lead time demand = lead time x average daily sales 

  • Safety Stock 

Knowing the average demand for a product is not enough. That demand may suddenly increase, or due to supplier issues, inventory may not be replenished as expected. Safety stock, as the name implies, is an extra “just in case” stock that you keep at hand to anticipate fluctuations in demand and supply. 

Safety stock level = (Max daily orders x max lead time) – (average daily orders x average lead time). 

To determine the correct safety stock for a particular product: 

  1. Multiply the maximum number of orders per day by the maximum lead time that may be required in the event of a supplier delay.
  2. Multiply the common range of each day’s orders via way of means of the common lead time.
  3. Subtract the result of step 2 from the result of step 1.
  4. Now let’s return to the reorder point formula. All you have to do is add lead time requirements and safety stock calculations and you’re done. The ROP is now calculated. 


Setting reorder points frees up significant capital and allows the company to operate with maximum efficiency in inbound and outbound logistics. The most important and sometimes the most difficult part of accurately calculating reorder points is the need for reliable data to provide an accurate picture of supply chain planning and customer demand. If the data is incorrect, the calculation will be inaccurate and the inventory may be too high or too low. 

Chicago Shipper enables ecommerce manufacturers to control inventory, forecast demand, pack orders, lessen delivery costs, and supply on patron expectations. With a community of success facilities across the United States and technology that’s incorporated with the main ecommerce platforms, Chicago Shipper enables manufacturers to enhance their delivery strategy.