A reorder point tells you when to place an order. Order quantity tells you how much to buy. They are not interchangeable, even when both are expressed in units.
This example assumes one interchangeable stock item, steady average usage and a known lead time. It is a planning model rather than a promise of availability.
Calculate demand during lead time
Assume average use is 12 units per working day. Supplier lead time is five working days. Expected demand before a new order arrives is 60 units.
Add a stated buffer of 24 units:
Reorder point = 12 × 5 + 24 = 84 units
The 24-unit buffer is hypothetical. It is not a statistically calculated safety stock or a service-level guarantee.
Decide which stock measure triggers the order
Suppose 50 units are on hand, 40 are already on order and 10 are committed to unfulfilled demand. A simple inventory-position convention gives:
Inventory position = 50 + 40 − 10 = 80
Under an 84-unit trigger based on that convention, the position is below the reorder point. This avoids treating on-hand stock alone as the full picture. However, an overdue order cannot safely be treated as though it will arrive on time; track its expected date as well.
The convention must also avoid subtracting reservations twice if they are already reflected in the on-hand quantity your system reports.
Choose quantity separately
If you choose an order quantity of 100 units, that does not change the 84-unit trigger. The quantity might reflect pack sizes, storage space, shelf life, cash constraints or an economic-order model. Check the assumptions of that model before using its output.
For example, four packs of 25 produce a 100-unit order. If the supplier instead sells packs of 30, rounding a 100-unit target up produces 120. See yield and pack sizes before comparing purchase prices.
Stress-test the supplier delay
If lead time rises from five to eight working days, expected lead-time demand becomes 96. Keeping the same 24-unit buffer would imply a trigger of 120, not 84.
At the old trigger, the model has only enough stock for seven days of average usage, so an eight-day replenishment delay would outlast that amount. Actual shortage risk depends on demand variability, existing orders and their timing.
Use records to improve the assumptions
Record actual consumption and actual supplier delivery times, including delays. Separate unusual one-off jobs from recurring usage where possible. Revisit the trigger when demand, suppliers or service promises change.
The government inventory reference describes approaches to inventory control; our example demonstrates one simplified reorder calculation rather than recommending a universal policy. Inventory reference.
Use the plumbing inventory reorder calculator for its stated demand-and-lead-time inputs, and check the cash forecast before increasing stock purchases.
About the examples and sources
The figures are hypothetical teaching examples created for AskToBot, not surveyed prices or recommended industry margins. The linked references explain the underlying concepts; they do not supply or endorse these example figures. The arithmetic is checked against the stated assumptions. This is AI-assisted educational content and has not been independently reviewed by an accountant. Read how we check calculations.
Decisions to check next
Sources & references
- Manage your inventory — Australian Government — business.gov.au
