Reorder Point (ROP) Formula: How to Calculate with Example
Reorder point formula: ROP = (consumption rate × lead time) + safety stock. Step-by-step calculation, worked example, and how ROP differs from PAR level and EOQ.The reorder point (ROP) is the inventory level at which a new purchase order should be placed. It is sized so that the order arrives just before existing stock is depleted, with a safety buffer for variability.
Quick answers
What is a reorder point? The reorder point is the on-hand inventory level that triggers a new purchase order. When stock drops to this level, the system (or operator) places an order so the new shipment arrives just before existing stock runs out.
What is the reorder point formula? ROP = (consumption rate × lead time in days) + safety stock. Safety stock is z × σ × √(lead time), where z is the z-score for your target service level and σ is the standard deviation of daily demand.
How is a reorder point different from a PAR level? Reorder point is the level . PAR level is the level you order up to. ROP is below PAR. A continuous-review system fires an order when stock crosses ROP; a periodic-review system reorders up to PAR on a schedule regardless.
Why does my reorder point need to change? Lead times shift, demand shifts, supplier reliability shifts. A static reorder point gets stale within months. The right system recomputes ROP daily from rolling consumption data.
The formula
ROP = (consumption rate × lead time in days) + safety stock
where:
- consumption rate = average daily demand
- lead time = days from order placement to receipt
- safety stock = z × σ × √(lead time), per the standard formula
Worked example
A retailer sells 12 units of a SKU per day. The supplier ships in 4 days. Daily-demand σ is 3 units. Target service level is 95% (z = 1.65).
- Lead-time demand = 12 × 4 = 48 units
- Safety stock = 1.65 × 3 × √4 = 9.9 units
- ROP ≈ 58 units
When inventory drops to 58 units, place an order.
ROP vs PAR level
These are related but not the same.
- Reorder point is the level at which you order.
- PAR level is the level you order up to.
In a continuous-review system, you reorder whenever inventory hits ROP, ordering up to PAR. In a periodic-review system (e.g. you order every Tuesday), you reorder up to PAR regardless of whether ROP was crossed. Most SMBs run periodic.
A third way to express the same threshold is days of inventory on hand (DOH): when DOH drops below lead time plus safety stock days, the item is in reorder territory — the same signal as crossing ROP, expressed in days rather than units.
The category-level counterpart to ROP is open-to-buy (OTB) — the total dollar buying budget for a period. ROP tells you when to place an item-level order; OTB constrains how much of the period budget you have left to spend across all items. Both are required in a complete retail replenishment system.
The two replenishment modes
LineNow supports both:
- Continuous review: orders triggered by inventory crossing ROP. Best for high-velocity items where stockout cost is high.
- Periodic review: orders triggered by the calendar (e.g. weekly). Best for items where consolidation onto a single supplier truck matters more than tightness.
The replenishment trigger types LineNow supports include below_threshold, out_of_stock, always, below_days_of_stock, below_lead_time_coverage, and reorder_point. Each maps to a different operational pattern.
Why ROP is often wrong in practice
The artisanal procurement stack rarely calculates ROP — the operator just orders "when it looks low." This is fine for items with stable demand and a forgiving lead time. It fails badly when:
- Lead times spike (supplier delays, port congestion)
- Demand spikes (a viral mention, a holiday rush)
- Consumption rate drifts (seasonal swings, trend changes)
A real ROP, recomputed daily from POS-synced inventory data, catches all three.