How to Calculate Reorder Point (With a Bangladesh Shop Example)

The reorder point formula

Reorder point (ROP) = (average daily units sold x supplier lead time in days) + safety stock. When your stock position - units on hand plus units on order - falls to this number, place the purchase order. The first term covers what you will sell while waiting for delivery; safety stock covers the bad days when demand spikes or the supplier runs late. Get this one number right per product and both stockouts and dust-collecting overstock become rare exceptions.

Safety stock: the buffer that absorbs surprises

Safety stock = Z x sd x square root of L, where Z is your service-level factor, sd is the standard deviation of daily sales, and L is supplier lead time in days. Z encodes how badly you want to avoid stockouts: 1.28 gives roughly 90% service, 1.65 gives 95%, 2.05 gives 98%, and 2.33 gives 99%. Higher protection means carrying more stock, so match the level to the item: daily essentials that drive footfall deserve 95% or better, while slow movers can live with less.

Worked Example: Rice Sacks in a Grocery Shop

Running the numbers

A Dhaka grocery sells miniket rice by the sack. Records show average daily sales of 12 sacks with a standard deviation of 3 sacks, and the wholesaler delivers 4 days after ordering. Targeting a 95% service level means Z = 1.65. Step one: lead-time demand = 12 x 4 = 48 sacks. Step two: safety stock = 1.65 x 3 x square root of 4 = 1.65 x 3 x 2 = 9.9, rounded to 10 sacks. Step three: reorder point = 48 + 10 = 58 sacks. The moment rice stock - including anything already on order - touches 58 sacks, order from the wholesaler.

What the number means in practice

On a normal stretch you will sell 48 sacks during the four-day wait, and the 10-sack buffer absorbs day-to-day swings - covering you on about 95 days out of 100. Order earlier than 58 and capital sits idle in the storeroom; order later and one busy weekend empties the shelf while customers walk to the shop next door. The same three-step arithmetic works for oil cartons, flour bags or any SKU where you know rough daily sales, delivery lag and how steady demand is.

Adjusting for Ramadan and Eid demand

Seasonality breaks naive formulas, so adjust the inputs, not the method. Say last year's Eid weeks roughly doubled rice sales: apply that multiplier to the demand statistics. Average daily sales become 24 sacks, and variability scales with volume, so sd rises to about 6. Recalculate: safety stock = 1.65 x 6 x 2 = 19.8, about 20 sacks; reorder point = (24 x 4) + 20 = 116 sacks. Raise the trigger a few weeks before the season using last year's calendar as your cue, then step it back down after. Software that keeps seasonal sales history turns this into a two-minute adjustment instead of a guess.

Five mistakes that wreck reorder points

Using your best trading day as the average inflates every order - use a normal month's daily figure. Ignoring lead-time variability: if the supplier sometimes takes six days instead of four, extend L or hold extra buffer for the difference. Never recalculating: rerun the numbers monthly for fast movers and before every season. Watching shelf stock instead of stock position (on hand plus on order minus committed), which triggers duplicate orders whenever a delivery is pending. And rounding safety stock down to zero because it looks like idle stock - it is insurance, priced in sacks.

Frequently asked questions

Q: How do I estimate sd without any statistics background? A: Pull four typical recent weeks of daily sales, take the difference between the busiest and quietest day, and divide by four - a rough standard-deviation shortcut that beats guessing. Q: Should stock already on order count toward the reorder point? A: Yes. Compare your stock position (on hand plus incoming minus committed sales) against the ROP, or you will double-order every time a delivery is still in transit. Q: How often should I recalculate? A: Monthly for fast movers, before every major season, and whenever a supplier's lead time changes. A reorder point is a living number, not a one-time setup.

Put reorder points on autopilot

The math fits on an index card, but tracking daily sales variance and lead times by hand does not scale past a handful of products. Inventory software computes reorder points continuously and alerts you the moment a product touches its line. Learn more about our [inventory management software](/solutions/inventory-management-software), including how this works for [grocery shop operations](/industries/grocery) where perishables and seasonal rushes make timing critical.

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