Question 1

What is a reorder point and how is it calculated?

Accepted Answer

The reorder point (ROP) is the inventory level at which you should place a new purchase order. Formula: ROP = (Average Daily Sales × Lead Time) + Safety Stock. For example, if you sell 12 units/day with a 14-day lead time and 30 units of safety stock: ROP = (12 × 14) + 30 = 198 units. When inventory drops to 198, place a PO to avoid stockouts.

Question 2

How do you calculate safety stock?

Accepted Answer

Safety stock is buffer inventory that protects against demand spikes and supplier delays. The statistical formula is: Safety Stock = Z × σ, where Z is the service level factor (1.65 for 95%) and σ is the standard deviation of demand during lead time. This accounts for both demand variability (some days you sell more) and lead time variability (some shipments arrive late).

Question 3

What service level should I use for safety stock?

Accepted Answer

95% service level is standard for most products — meaning you'll have stock 95% of the time during lead time. Use 99% for best-sellers and high-margin items where stockouts are very costly. Use 90% for slow-moving or low-margin items where holding extra inventory is expensive. Higher service levels require exponentially more safety stock: 95% needs ~1.65σ, 99% needs ~2.33σ.

Question 4

How much does a stockout cost?

Accepted Answer

Stockout cost = lost daily sales × selling price. If you sell 12 units/day at $45 each, a stockout costs $540/day in lost revenue. But the true cost is higher: lost customers may not return (estimated 30-40% churn), your search rankings drop for out-of-stock products, and competitors capture your demand. A week-long stockout on a $45 product selling 12/day costs $3,780+ in direct lost revenue.

Question 5

How often should I recalculate reorder points?

Accepted Answer

Recalculate monthly for most products, weekly for fast-moving items. Reorder points should change when: average daily sales shift (seasonal demand), lead times change (supplier issues, shipping delays), or you change service level targets. Many Shopify apps automate this — they track sales velocity and adjust reorder points automatically. At minimum, review before peak seasons.

Service Level	Safety Stock	Reorder Point	SS Value	Holding Cost/yr
90%	37 units	205 units	$555	$139
95%Selected	47 units	215 units	$705	$176
97.5%	56 units	224 units	$840	$210
99%	66 units	234 units	$990	$247

Reorder Point Calculator

Related Tools

Safety Stock Calculator

Economic Order Quantity (EOQ) Calculator

Stockout Cost Calculator

Inventory Turnover Calculator