What does a reorder point mean?
A reorder point means the quantity of a SKU on hand at which the store must order more, given how fast the SKU sells and how long the supplier takes to deliver, so that the shelf does not go empty before the delivery arrives. When stock falls to the reorder point, a purchase order should be raised that day. It is the mechanism that turns inventory from a reaction to a plan.
The concept is old and simple. What stores get wrong is the inputs: a lead time typed in once and never measured, demand taken as an average that ignores seasonality, and no buffer for the weeks when both go wrong at once.
How is a reorder point calculated?
A reorder point is calculated as the expected demand during the lead time plus safety stock. Expected demand during lead time is the forecast daily demand multiplied by the lead time in days. Safety stock is a buffer that covers the variance in demand and in lead time at the service level the store wants; a higher service level, meaning fewer accepted stockouts, needs more safety stock.
A labelled worked example, illustrative only: a SKU sells ten units a day on average, and the supplier's measured lead time is twenty days. Expected demand during lead time is two hundred units. Demand and lead time both vary, and the owner wants a high service level on this SKU, so the safety stock is set at sixty units. The reorder point is two hundred and sixty: when stock on hand falls to two hundred and sixty, the order is raised.
Why must lead time be measured, not assumed?
Lead time must be measured because suppliers do not deliver in the number of days their quote says. The store's own purchase order history shows, per supplier, the actual days from order to receipt and how much that varied: a supplier that quotes three weeks and delivers in three to six is a different planning problem from one that delivers in three every time. A reorder point built on the quoted three weeks stocks out on the six-week deliveries.
The Inventory FTE on ftes.ai reads lead time and its variance per supplier from the purchase order history, updates it as receipts arrive, and shows both numbers on every reorder point. A supplier whose variance widens is flagged, because that is a supplier the safety stock is about to fail against.
What is safety stock, and who decides it?
Safety stock is the buffer above expected lead-time demand that absorbs the weeks when demand runs above forecast or the delivery runs late. Its size depends on how variable demand and lead time are for that SKU and on the service level the store chooses, which is the share of demand the store intends to meet from stock. The service level is a business decision: a store might accept some stockout risk on a slow SKU with a high holding cost and accept almost none on its top seller.
The owner sets service levels per SKU tier in Setup; the Inventory FTE sizes safety stock from them and the measured variance, and shows the cash the buffer ties up so the trade-off is visible.
Why is one default reorder point wrong for most SKUs?
One default reorder point, or a default days-of-cover applied to every SKU, is wrong for almost all of them because SKUs differ in every input: velocity, seasonality, supplier lead time, variance, cost and how much a stockout costs. The default is too high for the slow, expensive SKUs, where it traps cash, and too low for the fast ones with long lead times, where it produces stockouts. Both failures show up at the same time in a store run on a default.
A reorder point per SKU, revised as the inputs move, is the fix. The revision is the part no one does by hand, which is why an Inventory FTE exists.
What does the Inventory FTE do with reorder points?
The Inventory FTE calculates the reorder point for every SKU from its own forecast, the measured lead time and variance per supplier, and the service level the owner set, and revises it as sales and receipts arrive. When stock reaches a reorder point it proposes the purchase order the same day, with quantity, lead time, landed cost and cash tied up, and the order waits for the approver. Every reorder point shows its inputs in the Stock tab, so the owner can challenge a lead time or a service level and see the effect.
It does not place the order. The reorder point decides when to propose; the person decides whether to buy.