A reorder point is a trigger to place an order. It is not the quantity to buy, a promise that stock will last or a measure of supplier reliability. Test its assumptions against the timing of actual demand and arrivals.
Reproduce the starting trigger
Assume average demand of 12 units per day, a five-day replenishment lead time and a buffer of 24 units. The trigger is 12 × 5 + 24 = 84 units. Enter these figures in the inventory reorder calculator.
The 24-unit buffer represents two average days of demand. It is a chosen planning allowance. Without a demand and lead-time distribution, it does not establish a 95% or 99% service level.
Watch inventory position and physical availability
Suppose there are 50 units on hand, 40 confirmed on order and 10 owed to customers. Inventory position is 50 + 40 − 10 = 80, below the 84 trigger. That suggests reviewing replenishment, but it does not mean 80 units are physically available today.
If the ten committed units ship now, only 40 remain for new demand. At 12 per day that is about 3.33 days of average cover. If the 40 incoming units arrive on day five, the position calculation conceals a near-term availability gap. Plot receipts and demand by day.
Compare demand and lead-time scenarios
Starting with 84 physically available units and an order just placed:
| Scenario before delivery | Expected demand | Units left, or shortfall |
|---|---|---|
| 12 per day for 5 days | 60 | 24 left |
| 12 per day for 8 days | 96 | 12 short |
| 15 per day for 5 days | 75 | 9 left |
| 15 per day for 8 days | 120 | 36 short |
The joint high-demand, delayed-delivery case is not represented by testing either change alone. To cover eight days at 12 per day with the same 24-unit buffer, the trigger would be 120. That is a scenario result, not an automatic recommendation to hold more stock.
Decide what to change
Compare the costs and feasibility of more stock, a quicker supplier, split deliveries, substitutes or a different promised delivery date. More buffer ties up cash and may expire; faster freight costs money but can avoid carrying every item continuously.
Keep records of daily demand, actual order-to-usable-delivery time and stockouts. Sales alone may understate demand when customers cannot buy an unavailable item. Update the assumptions when the evidence changes, and keep order quantity separate from the trigger.
Method and scope
All amounts above are hypothetical teaching figures in one currency, excluding tax unless stated otherwise. These are original scenarios, not market prices, benchmark targets or professional recommendations. The references support the underlying concepts, not the example assumptions. This AI-assisted explanation has not had independent professional review. Calculation methods and limitations.
Frequently asked questions
Does safety stock of 24 mean a known service level?
No. Here it is a two-day average-demand allowance. A probability target needs a defined model and suitable demand and lead-time evidence.
Can on-order stock prevent a stockout today?
Only if it arrives before it is needed. Inventory position includes incoming quantities but does not establish their availability at an earlier date.
Sources & references
- Manage your inventory — Australian Government — business.gov.au
