Reorder Point Calculator

Reorder point optimisation for Australian wholesalers and distributors

The reorder point is the inventory level at which you should place a new purchase order so that stock arrives before you run out. Get it right and you maintain service levels without excess inventory. Get it wrong and you either stockout (losing sales and damaging customer relationships) or overstock (tying up working capital and paying unnecessary holding costs).

For Australian distributors with overseas suppliers - where lead times can be 30-60 days for sea freight from China or 5-10 days from New Zealand - reorder point calculation is particularly critical. The longer and more variable the lead time, the higher your reorder point needs to be.

Basic vs Advanced reorder point formulas

The basic formula is: Reorder Point = (Average Daily Sales x Lead Time) + Safety Stock. Safety stock is expressed as extra days of cover. This works well when demand and lead times are relatively stable.

The advanced formula accounts for variability: Safety Stock = Z x sqrt(L x sigmaD^2 + D^2 x sigmaL^2), where Z is the service level factor, L is lead time, sigmaD is demand standard deviation, and sigmaL is lead time standard deviation. This gives more precise safety stock levels that account for both demand uncertainty and supplier reliability.

Choosing your service level

Service level is the probability of not stocking out during a replenishment cycle. A 95% service level means you expect to meet demand from stock 95% of the time. Higher service levels require exponentially more safety stock - going from 95% to 99% roughly doubles your safety stock requirement. The right level depends on the cost of a stockout (lost margin, customer churn, penalty clauses) vs the cost of carrying extra inventory.

How AP automation supports better reorder decisions

Accurate reorder points depend on accurate data - particularly actual lead times from suppliers. When purchase orders and supplier invoices are processed automatically, you get real data on how long each supplier actually takes to deliver (not just their quoted lead time). This feeds directly into better reorder point and safety stock calculations, reducing both stockouts and excess inventory.