Business Analytics · Intermediate level

Intermediate level · Module 3: Operations and Inventory Analytics · Lesson 2 of 3

Reorder Points and Safety Stock

Decide when to reorder so stock arrives before it runs out.

In this lesson you will

  • Calculate a reorder point
  • Size safety stock for uncertainty

Key concepts

lead timedaily demandreorder pointsafety stock

The lesson

The reorder point is the stock level that triggers an order: average daily demand × lead time in days + safety stock.

Safety stock covers uncertainty in demand and delivery. If a supplier's deliveries take 10 to 20 days, plan for the longer times.

Review reorder points when demand or lead times change — for example, before the rainy season when roads close.

Step by step

  1. Calculate average daily demand for an A item.
  2. Find typical and worst lead times.
  3. Set safety stock.
  4. Calculate the reorder point.

Practice activity

Set reorder points for the pharmacy's A items.

Expected result: Reorder points with demand, lead time and safety stock shown.

Check your understanding

  1. Give the reorder point formula.

    Show answer

    Average daily demand × lead time + safety stock.

  2. What does safety stock protect against?

    Show answer

    Unexpected demand and delivery delays.

Taught live by an instructor — online or in person. Free course lessons are for self-study and do not lead to a certificate — see registration options.