Formula
ROP = (Average Daily Demand × Lead Time) + Safety Stock
When to Use
Use Reorder Point to know exactly when to place a new order, rather than checking inventory on a fixed schedule. Once stock falls to the reorder point, you place an order immediately — the remaining inventory covers demand during the supplier's lead time, plus a safety buffer for variability. This keeps replenishment trigger-based and your supply chain stable.
Example
Scenario: A small manufacturer managing raw materials
Average daily demand: 10 units
Supplier lead time: 7 days
Safety stock: 50 units (calculated separately, protects against variability)
Calculation:
ROP = (10 × 7) + 50
ROP = 70 + 50
ROP = 120 units
When inventory reaches 120 units, place a new order. This ensures enough stock to meet demand during the 7-day lead time (70 units) plus the safety buffer (50 units).