Calculate inventory reorder points with lead time demand, safety stock levels, and service level requirements for stock management.
The reorder point is the stock level at which you place the next purchase order, and it exists for one reason: to cover everything you will sell during the supplier's lead time. This tool takes average daily demand, lead time, and demand variability, converts your target service level into a z-score, and combines lead-time demand plus safety stock into a single trigger level. The most common mistake is treating the result as the quantity to order; it is a when, not a how much. A close second is mixing units, such as daily demand with a lead time in weeks.
A concrete input and expected output from the current implementation.
Input
Average daily demand: 50 units. Lead time: 7 days. Standard deviation of daily demand: 10 units. Service level: 95%.
Expected output
Lead time demand: 350 units. Safety stock: 43.5 units. Reorder point: 393.5 units, rounded up to 394 units. Place the next order whenever on-hand stock reaches 394 units or fewer.
Lead time demand is 50 x 7 = 350. Safety stock is the 95% z-score (1.645) times the standard deviation (10) times the square root of the lead time (about 2.646), which is 43.52. The reorder point is 350 + 43.52 = 393.52, rounded up to 394 because stock is counted in whole units.
Average daily demand is multiplied by the lead time in days to get the units you expect to sell between placing an order and receiving it. That product is the floor of the calculation. The units must agree: daily demand paired with a lead time in weeks shifts the result by a factor of seven, and the error stays invisible until stockouts appear.
The service level percentage is converted to a z-score from the standard normal distribution, 1.645 for 95% and 2.326 for 99%. Safety stock equals the z-score times the standard deviation of daily demand times the square root of the lead time. The square root term reflects that demand variability grows with the square root of time, not linearly.
In the sense the calculation uses, yes: about 5% of order cycles should hit a stockout, which is the cycle service level definition. It is not 5% of calendar days, and the figure only holds if demand is normal and stable. A fill-rate target, the share of unit demand actually met, needs a different and usually larger safety stock.
The z-score rises from 1.645 to 2.326, so for the same variability safety stock grows about 41% while failures only drop from 5% to 1% of cycles. The normal curve is thin at the tail, so the last points of service are the most expensive. If 95% is commercially tolerable, the extra capital usually earns more elsewhere.
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