Reorder Points and Safety Stock Made Simple

A reorder point is the stock level at which you place a new order. Get it right and you rarely run out without drowning in stock. Get it wrong and you'll do both, often on the same day, for different products.

The basic formula

Reorder point = (average daily demand x lead time in days) + safety stock

Example: you sell 20 units a day and your supplier takes 10 days to deliver.

• Demand during lead time: 20 x 10 = 200 units
• Add safety stock of, say, 60 units
• Reorder point: 260 units

When stock falls to 260, you order. By the time the new stock arrives, you'll have used about 200 and still have roughly 60 left as a buffer.

Where the numbers come from

Average daily demand. Take actual sales (or consumption, for raw materials) over a recent period, typically 90 days, and divide by the number of days. Exclude one-off spikes like a single huge order you don't expect again.

Lead time. Use the real lead time, not what's on the supplier's quote. Your ERP can calculate it from purchase order dates and receipt dates. Many people are surprised by the difference.

Safety stock. This covers variation in demand and in lead time. Two practical ways to set it:

1. Rule of thumb. A number of days of demand. For example, 3 days for reliable local suppliers, 10 or more for overseas suppliers.
2. Statistical. Safety stock = Z x standard deviation of demand during lead time, where Z reflects the service level you want (around 1.65 for 95%). More accurate, more effort.

Start with the rule of thumb. Move to statistical safety stock for your top items once you have clean data.

Min/max rules

Most ERPs, including Odoo, express this as reordering rules with a minimum and a maximum:

• Minimum = your reorder point
• Maximum = the level you order up to

When stock falls below the minimum, the system suggests a purchase order (or a manufacturing order) to bring it back up to the maximum. The gap between min and max effectively sets your order size. Factor in the supplier's minimum order quantity and pack sizes.

Don't treat every product the same

Use ABC classification:

• A items (top ~20% of products by value, often ~80% of turnover): calculate carefully, review monthly
• B items: review quarterly
• C items: simple rules, review twice a year

Spending equal effort on every SKU is how planners burn out.

Seasonal and promotional items

A static reorder point fails for seasonal products. Either adjust rules ahead of the season, or use forecasting. Odoo's replenishment report can take forecasted demand into account, but it needs planners who know the season is coming.

When reorder points aren't the answer

• Make-to-order or highly custom products. Order against the sales order instead.
• Very slow movers. Sometimes it's cheaper to accept the stockout and order on demand.
• Products with a single huge customer. Plan with the customer's forecast, not your history.

Review habit

Put a recurring 30-minute review on the calendar:

1. List products that went out of stock since the last review
2. List products with more than six months of stock
3. Adjust their rules, and note why

That small habit fixes more than any algorithm.

See the inventory management guide for the bigger picture, or our purchase management solution for how we automate replenishment in Odoo.