Inventory Reorder Point Calculator
Calculate the reorder point and safety stock from demand variability, lead time variability and a target service level, using the statistical method rather than a flat rule of thumb.
Last reviewed by the Radiatus Cloud team
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Safety stock is bought insurance
A reorder point that covers only average demand over average lead time will stock out roughly half the time, because half of all outcomes are above average. Safety stock is the buffer that covers the variation, and the amount required depends on how variable demand and lead time are and on how often you are willing to run out. Setting it as a flat two weeks of cover ignores all three inputs and is either wasteful or inadequate, usually both across different items.
Service level costs more as it approaches certainty
The relationship between service level and safety stock is governed by the normal distribution, and it is sharply non linear at the top end. Moving from ninety to ninety five percent costs about half again as much safety stock. Moving from ninety five to ninety nine roughly doubles it again, and ninety nine point nine requires nearly twice as much as ninety nine. That is why a blanket ninety nine percent target across every product line ties up an enormous amount of capital for a marginal reduction in stockouts on items nobody urgently needs.
Lead time variability usually dominates
When both demand and lead time vary, the combined formula weights lead time variability by the average demand, which means an unreliable supplier costs far more safety stock than variable demand does. A supplier whose lead time swings between ten and thirty days forces you to hold buffer for the worst case on every order. Improving supplier reliability is frequently cheaper than the inventory it saves, and this calculation makes that trade visible.
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Frequently Asked Questions
What service level should I use?
Match it to the item. Ninety five percent is a common default for important items, ninety for ordinary ones, and ninety nine only where a stockout is genuinely costly. Applying the highest figure to everything is how working capital disappears into slow moving stock.
Why does lead time variability matter so much?
Because it is multiplied by average demand in the combined formula. An unreliable supplier means every order must be buffered against the worst plausible delay, which is usually a larger number than the buffer demand variation requires.
How do I get the standard deviations?
From your own history. Take the demand in each period over the last year and compute the standard deviation across periods, using the same period length as your lead time. Do the same for actual received lead times, not quoted ones.
What if my demand is not normally distributed?
The normal approximation works acceptably for items with reasonably frequent movement. For slow moving items with long gaps between orders it overstates safety stock, and a Poisson or negative binomial model fits better.
Should the reorder point include stock already on order?
Yes. Compare the reorder point against inventory position, which is stock on hand plus stock on order minus backorders, not against stock on hand alone. Comparing against on hand alone triggers duplicate orders.
Privacy & Security
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How to Use
Enter average demand, lead time and their variability, then set a service level to get the reorder point.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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