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Reorder Point and Safety Stock Calculator

Calculates safety stock and the reorder point (ROP) from daily demand, demand variability, lead time and service level.

Version 2

Things to keep in mind:

  • The normal-demand assumption may not suit erratic or intermittent demand.
  • Compute the standard deviation from real history; guessed values mis-size safety stock.
  • Seasonality, promotions and order quantity (EOQ) are not modelled.
  • Service level is limited to the five listed values.

Calculator

Demand

Average units sold or used per day.

Variability of daily demand (units). 0 if demand is constant.

Supply and service level

Average days from order to delivery.

Optional: uncertainty in lead time (days). 0 if fixed.

Probability of not running out of stock during lead time; higher means more safety stock.

After the first calculation, the result updates automatically when you change a value.

Result

Enter the values and press Calculate to see the result here.

About this tool

The reorder point (ROP) is the stock level at which a new order should be placed. Safety stock is the extra inventory held against demand and lead-time uncertainty.

Formulas

  • Lead-time demand = d × L
  • Lead-time demand std dev σ_LT = √(L × σ_d² + d² × σ_L²)
  • Safety stock = z × σ_LT
  • Reorder point = d × L + safety stock

d is average daily demand, σ_d the daily demand standard deviation, L the lead time in days, σ_L the lead-time standard deviation and z the standard-normal value for the service level: 90 % → 1.2816; 95 % → 1.6449; 97.5 % → 1.9600; 99 % → 2.3263; 99.9 % → 3.0902.

Example: d = 50, σ_d = 10, L = 9 days at 95 %: σ_LT = √(9 × 100) = 30; safety stock 1.6449 × 30 = 49.35; ROP = 450 + 49.35 = 499.35, in practice 500 units.

Demand is assumed to be normally distributed and independent from day to day.

How to read the result

Place a new order when stock on hand (including open orders) falls to the reorder point: average demand during the lead time is covered, and the safety stock covers days when demand or lead time turn out worse than expected. Raising the service level from 95% to 99% raises z from 1.6449 to 2.3263, i.e. about 41% more safety stock, so choose the service level by the product's margin and the cost of running out. Use the economic order quantity (EOQ) tool to decide how much to order.

How to use

  1. Enter average daily demand and its standard deviation.
  2. Enter lead time and, if known, its standard deviation.
  3. Select the target service level.
  4. Press Calculate.

Notes

z values are standard normal quantiles. Safety stock and ROP are rounded HALF_UP to 2 decimals; the "rounded up" output is the ceiling of the unrounded ROP. The service level is a cycle service level (probability of no stock-out per replenishment cycle).

Sources

Frequently asked questions

4 questions
  1. Extra stock held above expected lead-time demand to protect against higher demand or late deliveries.

Next step

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