Few things frustrate customers faster than seeing “out of stock” on a product they are ready to buy.For e-commerce, retail, wholesale, and B2B businesses across Canada and the USA, stockouts do more than delay orders. They reduce revenue, hurt customer trust, disrupt fulfillment, and can push buyers toward competitors.
The solution is not simply “order more inventory.” That creates another problem: overstock, dead stock, and higher storage costs. Inventory carrying costs commonly range from 20% to 30% of inventory value, depending on the business and industry. The smarter solution is setting accurate reorder points.
What Is a Reorder Point?
A reorder point is the inventory level that tells you when to reorder a product before it runs out. A common reorder point formula is:
Reorder Point = Average Daily Demand × Lead Time + Safety Stock
This formula helps ensure you have enough inventory to cover normal sales during supplier lead time, plus extra buffer stock for delays or demand spikes.
For example, if you sell 20 units per day, your supplier lead time is 10 days, and you keep 50 units of safety stock:
Reorder Point = 20 × 10 + 50 = 250 units
That means when inventory drops to 250 units, it is time to reorder.
Why Reorder Points Matter
Reorder points help businesses avoid two costly extremes: running out of stock and holding too much inventory.
Strong reorder points can help you:
- Prevent stockouts
- Improve cash flow
- Reduce rush orders
- Lower carrying costs
- Improve customer satisfaction
- Support faster order fulfillment
- Reduce warehouse congestion
- Improve supplier planning
Without reorder points, teams often rely on guesswork. That leads to panic purchasing, emergency shipping, missed sales, or overordering.
Step-by-Step: How to Set Up Reorder Points
1. Calculate Average Daily Demand
Average daily demand tells you how many units you sell or use per day.
Use this formula:
Average Daily Demand = Total Units Sold ÷ Number of Days
For example, if you sold 900 units in 30 days:
900 ÷ 30 = 30 units per day
For seasonal businesses, do not rely only on yearly averages. A winter apparel brand, for example, should calculate demand separately for peak season and off-season.
If your sales fluctuate across Shopify, Amazon, wholesale, or retail channels, real-time inventory tracking helps provide more accurate demand data.
2. Know Your Supplier Lead Time
Lead time is the number of days between placing a purchase order and receiving usable inventory.
Lead time includes:
- Supplier processing
- Production time
- Freight transit
- Customs clearance
- Container offloading
- Receiving
- Inspection
- Putaway
If you import goods, receiving delays can affect reorder points. Professional container offloading can help move inbound products faster from container to inventory.
Use actual historical lead times, not supplier promises. If your supplier says 14 days but usually takes 21, use 21.
3. Add Safety Stock
Safety stock is extra inventory held to protect against unexpected demand or supply delays.
Oracle NetSuite documentation explains that safety stock in days can be calculated as daily demand multiplied by the safety stock level in days.
A simple safety stock formula is:
Safety Stock = Maximum Daily Demand × Maximum Lead Time – Average Daily Demand × Average Lead Time
For example:
- Maximum daily demand: 50 units
- Maximum lead time: 14 days
- Average daily demand: 30 units
- Average lead time: 10 days
Safety Stock = 50 × 14 – 30 × 10 = 400 units
That buffer helps protect you from supplier delays, sudden demand spikes, and seasonal surges.
4. Apply the Reorder Point Formula
Once you know average daily demand, lead time, and safety stock, calculate the reorder point.
Example:
- Average daily demand: 30 units
- Lead time: 10 days
- Safety stock: 100 units
Reorder Point = 30 × 10 + 100 = 400 units
When stock reaches 400 units, reorder.
This number should not be static forever. It should change as demand, lead times, supplier performance, and seasonality change.
5. Set Reorder Points by SKU
Do not use one reorder rule for every product.
Different SKUs have different sales velocity, margins, lead times, storage costs, and supplier risk.
Segment inventory into categories:
- Fast-moving products
- Slow-moving products
- Seasonal products
- High-margin products
- Long-lead-time imports
- Critical components
- Promotional inventory
This is where understanding types of inventory management becomes useful. The right method depends on how each product moves through your supply chain.
6. Use a WMS to Automate Reorder Alerts
Manual spreadsheets work at first. But as your SKU count grows, manual tracking becomes risky.
A warehouse management system can help automate reorder alerts, track inventory movement, improve receiving accuracy, and reduce manual errors.
A WMS helps teams:
- Monitor stock levels
- Set reorder triggers
- Track product locations
- Reduce picking errors
- Improve replenishment decisions
- Connect inventory with fulfillment
For businesses managing multiple sales channels, automation is not a luxury. It is how you prevent stockouts before they happen.
Common Mistakes When Setting Reorder Points
Using Outdated Sales Data
If you use old sales data, your reorder point may not reflect current demand. Review sales trends monthly or quarterly.
Ignoring Lead Time Variability
Supplier delays, port congestion, customs issues, and freight disruptions can extend lead times. Build realistic buffers.
Not Accounting for Seasonality
A reorder point that works in March may fail in November. Seasonal products need seasonal reorder points.
Treating All SKUs the Same
Fast-moving products need tighter monitoring. Slow-moving products need careful purchasing to avoid dead stock.
Poor Inventory Accuracy
If your system says you have 500 units but the warehouse has 350, your reorder point will fail. Review these common inventory mistakes to identify hidden problems.
Practical Example: Reorder Points for an E-Commerce Brand
A Canadian e-commerce brand sells home organization products across Canada and the USA.
One bestselling storage bin sells 40 units per day. Supplier lead time is 18 days. Because demand spikes during back-to-school and holiday seasons, the brand keeps 200 units of safety stock.
Reorder Point = 40 × 18 + 200 = 920 units
Before setting reorder points, the brand often ran out of stock during promotions. After implementing reorder alerts and using storage management support, inventory was replenished earlier, fulfillment delays dropped, and fewer customers saw out-of-stock notices.
How a 3PL Helps Prevent Stockouts
A reliable 3PL can help businesses set and maintain better reorder points by improving inventory visibility, receiving speed, storage organization, and fulfillment accuracy.
A 3PL provider can support:
- Real-time stock visibility
- Faster receiving
- Inventory cycle counts
- Storage optimization
- Repacking and kitting
- Fulfillment support
- Cross-border shipping
- Reorder reporting
If your business is growing and inventory is becoming harder to manage internally, review these questions to ask before choosing a 3PL provider.
FAQs About Reorder Points
What is a reorder point?
A reorder point is the inventory level that triggers a new purchase order before stock runs out.
What is the reorder point formula?
The common formula is: Reorder Point = Average Daily Demand × Lead Time + Safety Stock.
How often should reorder points be reviewed?
Review reorder points monthly for fast-moving products and at least quarterly for slower-moving inventory. Seasonal products should be reviewed before peak periods.
What is the difference between reorder point and safety stock?
A reorder point tells you when to reorder. Safety stock is the extra buffer inventory used to protect against demand spikes or supplier delays.
Can a 3PL help set reorder points?
Yes. A 3PL can provide inventory data, receiving support, real-time tracking, and fulfillment reporting to help businesses set more accurate reorder points.
Final Thoughts: Reorder Points Help You Sell Without Guessing
Stockouts are not just inventory problems. They are revenue problems.
When you set accurate reorder points, you stop reacting at the last minute and start managing inventory with confidence. The right formula, combined with real-time tracking, warehouse systems, supplier planning, and 3PL support, can help you keep products available without overstocking.
Six Side Logistics helps businesses across Canada and the USA improve inventory control, storage, receiving, fulfillment, and shipping operations.
Ready to prevent stockouts and improve inventory performance? Contact Six Side Logistics today to build a smarter inventory management workflow for your business.