The reorder point formula, with Indian lead times
Reorder point = average daily use × lead time in days + safety stock. Worked in rupees and units, with the lead times an Indian shop or distributor actually sees.
The reorder point is the stock level at which you place the next order. The formula is: average daily usage × lead time in days, plus safety stock. Sell 40 units a day, wait 7 days for delivery, and hold 100 units of safety stock, and your reorder point is (40 × 7) + 100 = 380 units. When on-hand falls to 380, you order — not when the shelf looks empty.
Why not just order when the shelf looks empty?
Because by then you are already late. The gap between placing an order and receiving it is the lead time, and you keep selling through it. If you order at zero and the supplier takes six days, you lose six days of sales on that item — and the customer who could not get it often buys the rest of their list somewhere else too.
The reorder point exists to cover exactly that gap, plus a cushion for the days when the gap or the demand turns out to be bigger than usual.
What is the reorder point formula?
Reorder point = (average daily usage × lead time in days) + safety stock
Three inputs, all of which you already have.
Average daily usage. Total quantity sold or consumed over a period, divided by the number of days in it. Use 60 or 90 days for a steady item. For a seasonal item, use the same weeks from last year, not last month — a school-bag reorder point computed in December is useless in May.
Lead time in days. Calendar days from the moment you place the order to the moment the goods are on your shelf and sellable. Not the supplier's promise. Measure it from your own last few purchase orders.
Safety stock. The cushion for variability. Covered below.
What lead time should I actually use?
Your own, measured. Take the last five or six receipts for that supplier, count the calendar days from order to shelf-ready, and use the average. The number people forget is the tail: the goods arriving at your godown is not the same as the goods being checked, entered and put away.
Typical shapes an Indian buyer sees, as a sanity check rather than a substitute for measuring:
| Supply route | What to count in the lead time |
|---|---|
| Local distributor, same city | Order to delivery, often same or next day, plus your own receiving time |
| Regional supplier, another state | Dispatch, road transit, and the e-way bill and documentation before the truck moves |
| Direct from a manufacturer | Their production or dispatch cycle, which may run on fixed weekly slots, plus transit |
| Imported goods | Sailing time, port clearance and customs, then inland transit — the clearance step is the variable one |
Two things stretch lead time in ways an average hides: festival weeks, when transporters are booked out and factories close, and the monsoon on some routes. If your business has a Diwali peak, compute a separate lead time for that period. Our post on choosing inventory software makes the same point about workflows — plan for the real day, not the ideal one.
How much safety stock do I need?
Safety stock covers two things going wrong at once: you sell faster than usual, and the supplier is slower than usual.
A simple method that needs no statistics:
Safety stock = (maximum daily usage × maximum lead time) − (average daily usage × average lead time)
Take an item where you normally sell 40 a day but have peaked at 65, and the supplier normally takes 7 days but has taken 12.
- Maximum: 65 × 12 = 780
- Average: 40 × 7 = 280
- Safety stock: 500 units
That is a large cushion, and it should be — those are your worst observed numbers, not your worst imaginable ones. If 500 units of cover is more cash than the item deserves, that is the signal to reduce it deliberately, not to pretend the variability is not there.
The trade-off is always the same: safety stock is service level bought with cash. More cover means fewer stockouts and more money sitting on the shelf. Give your fast, high-margin items a generous cushion and your slow, low-margin ones a thin one. Ordering everything to the same rule is how godowns fill up with items nobody asked for.
Can you work a full example in rupees?
Take a distributor stocking a fast-moving item.
- Sold in the last 90 days: 3,600 units → average daily usage 40 units
- Lead time measured over the last six purchase orders: 7 days
- Highest daily sale in that period: 65 units; longest lead time: 12 days
- Purchase cost: ₹185 per unit
Safety stock = (65 × 12) − (40 × 7) = 780 − 280 = 500 units
Reorder point = (40 × 7) + 500 = 780 units
So when on-hand for this item drops to 780, raise the purchase order. At ₹185 a unit, the safety stock alone is ₹92,500 of working capital held against this one item. That number is the point of the exercise: now you can decide whether the cover is worth it, instead of discovering it at stock-take.
If ₹92,500 is too much to lock up, your levers are real ones — negotiate a shorter or more reliable lead time, order more often in smaller quantities, or accept a lower service level on this item with your eyes open.
How much should I order when I hit the reorder point?
The reorder point tells you when. The order quantity is a separate decision, and for most small businesses it is driven by practical limits rather than a formula: the supplier's minimum order quantity, the case or box pack size, the slab at which a better rate kicks in, and how much cash you want tied up.
A workable rule: order enough to cover the period until your next planned order, plus the lead time, minus what you already have on order. Then round up to the nearest full case. Do not order to fill a shelf; order to cover a period.
Watch two traps. A quantity discount that pushes you to three months of cover on a slow item is not a discount, it is a loan to your supplier. And a minimum order quantity larger than a quarter of your annual usage means that item probably needs a different supplier.
How often should I review the numbers?
Quarterly for most items, and immediately when something structural changes: a new supplier, a price change large enough to alter what you are willing to hold, a product that suddenly moves, or a season starting.
Also review after every stockout. A stockout is data. Ask which input was wrong — was demand higher than the average, or the lead time longer than measured? — and correct that input rather than adding a blanket cushion to everything.
Set the reorder point per item and, if you run more than one location, per location. A godown that replenishes a shop has a different lead time from the shop that orders directly, and one shared number will be wrong for both.
FAQ
What is the difference between reorder point and reorder quantity? The reorder point is a stock level that triggers an order — when on-hand falls to it, you buy. The reorder quantity is how much you buy at that moment. One answers "when", the other answers "how much", and they are calculated from different inputs.
Should the reorder point include stock already on order? Compare the trigger against your stock position, not just what is physically on the shelf. That means on-hand plus goods already ordered and not yet received, minus quantities committed to customer orders. Otherwise you will order a second time for the same shortfall.
What if an item has no sales history? Estimate from a comparable item you already stock, set a deliberately small first order, and review after four to six weeks of real sales. A new item's first reorder point is a guess — the discipline is in correcting it early rather than getting it right on day one.
How does this work for items with an expiry date? The formula is unchanged, but the safety stock has a ceiling: never hold more cover than the shelf life can survive. For dated goods, pair the reorder point with a first-expiry-first-out picking rule so the cushion rotates instead of ageing. See FIFO, LIFO and FEFO explained.
Related reading: FIFO, LIFO and FEFO: which one your business needs and pharmacy inventory: batch and expiry done right.
If you want reorder points held per item and per location instead of in a notebook, KillStock does that on the Growth plan and above — see what it does and the plans.