In ecommerce, inventory is the lifeline of your business. Without it, sales stop, customers leave, and your brand reputation suffers. But managing inventory isn’t just about having enough products; it’s about having them at the right time and in the right quantity.
One of the most effective ways to achieve that is by understanding and implementing a reorder point strategy. This single metric helps you avoid two common and costly problems:
- Stockouts, which cause missed sales opportunities and dissatisfied customers
- Overstocking, which ties up capital and increases storage costs
This guide will take you through everything you need to know about reorder point in ecommerce, from what it is and why it matters, to how to calculate and optimize it for your business. Whether you’re selling 50 products or 5,000, knowing your reorder points can save time, money, and headaches.
What is reorder point in ecommerce?
The reorder point (ROP) is the exact inventory level at which you should place a new purchase order to replenish your stock before it runs out. It’s a trigger point; once your inventory falls to this level, you initiate a reorder to maintain smooth operations.
The concept may sound simple, but it’s grounded in important inventory management principles. Your reorder point isn’t just a guess or a “gut feeling”; it’s based on data such as sales velocity, supplier lead time, and safety stock.
Example:
If your ecommerce store sells wireless headphones and you average 25 sales per day, and it takes 8 days for your supplier to deliver new stock, your base reorder point would be:
25 units × 8 days = 200 units
If you add safety stock (let’s say 50 units), your reorder point becomes 250 units.
That means the moment your stock hits 250 units, it’s time to order again.
What is the importance of reorder point?
Reorder points are more than just numbers on a spreadsheet; they are a critical control mechanism in your supply chain. Without them, you risk two extremes:
Running out of stock (stockouts):
- Lost sales opportunities
- Damaged brand reputation
- Increased customer churn due to frustration
Carrying too much inventory (overstocking):
- Higher warehouse costs
- Tied-up working capital
- Risk of obsolescence or spoilage
By calculating and using reorder points, ecommerce businesses can optimize inventory turnover, improve cash flow, and keep customers happy.
It’s also worth noting that ecommerce runs on tight margins. Efficient inventory control via reorder points can be the difference between profitability and loss, especially during high-demand seasons or supply chain disruptions.
What are the key factors that affect reorder point?
Several variables influence your reorder point. Understanding each one helps you fine-tune your inventory strategy.
Lead time
Lead time is the number of days between placing an order and receiving it. If it takes 14 days for your supplier to deliver, your reorder point must cover at least 14 days’ worth of sales. Longer lead times naturally require higher reorder points.
Pro tip: Always calculate lead time based on actual historical performance, not just supplier promises.
Average daily sales (demand rate)
This is the average number of units you sell each day. Products with higher sales velocity will have higher reorder points.
Example:
- Product A sells 10 units/day with a 5-day lead time → ROP = 50 units
- Product B sells 50 units/day with the same lead time → ROP = 250 units
Safety stock
Safety stock is your “insurance” against unexpected demand spikes or supplier delays. Without it, a sudden rush of orders or a late shipment could cause a stockout.
Supplier reliability
A supplier that is consistently late or ships incomplete orders forces you to keep a larger safety buffer.
Seasonal demand
Products that sell more during certain times of the year (e.g., holiday decorations, swimwear) require seasonal adjustments to reorder points.
How do businesses calculate reorder point?
The standard reorder point formula is:
Reorder point = (Average daily sales × Lead time in days) + Safety stock
Step-by-step example:
- Average daily sales = 40 units
- Lead time = 7 days
- Safety stock = 80 units
ROP = (40 × 7) + 80
ROP = 280 + 80 = 360 units
This means that when your stock drops to 360 units, you should place a new order.
What is safety stock and how do you calculate it?
Safety stock is an extra cushion of inventory designed to protect against uncertainty. Without it, even a small delay could cause you to run out of products.
One common safety stock formula is:
Safety stock = (Max daily sales × Max lead time) – (Average daily sales × Average lead time)
Example:
- Max daily sales = 60 units
- Max lead time = 10 days
- Average daily sales = 40 units
- Average lead time = 7 days
Safety stock: (60 × 10) – (40 × 7)
Safety stock: 600 – 280 = 320 units
By adding 320 units as safety stock, you create a buffer against both demand surges and supply delays.
What are the roles of inventory management systems in reorder point tracking?
In the early days of ecommerce, many businesses relied on spreadsheets and manual tracking to manage stock. While that might work for a small product catalog, it quickly becomes inefficient and error-prone as your sales volume and product range grow.
This is where inventory management systems (IMS) play a critical role. These platforms centralize inventory data, making it easier to track stock across all sales channels and locations. They also help automate the reorder point process, ensuring you never miss the ideal reorder window.
Benefits of using IMS include:
- Real-time visibility: See exactly how much stock you have in warehouses, retail stores, or even in-transit shipments.
- Automated reorder triggers: Set reorder points for each SKU, and the system can automatically notify you, or even send a purchase order to your supplier.
- Multichannel synchronization: Avoid overselling by syncing inventory counts across platforms like Shopify, Amazon, eBay, and Etsy.
- Historical data for forecasting: Pull detailed sales reports to identify trends, allowing for more accurate reorder point adjustments.
- Reduced human error: Automation minimizes mistakes in data entry and manual calculations.
Popular ecommerce inventory management solutions include Cin7, Zoho Inventory, QuickBooks Commerce (formerly TradeGecko), SkuVault, and DEAR Systems. Choosing the right system depends on factors such as order volume, sales channels, and integration needs.
Reorder point vs. economic order quantity (EOQ)
While the reorder point tells you when to place a new order, economic order quantity (EOQ) tells you how much to order to achieve the lowest total cost.
The two concepts work together:
- ROP prevents you from running out of stock by signaling the right time to reorder.
- EOQ ensures you order the optimal quantity, balancing the costs of ordering and holding inventory.
Why both matter in ecommerce
If you rely only on ROP, you might order too little or too much each time. If you rely only on EOQ, you could still run out of stock because you ordered too late.
By combining them, you ensure:
- Timely orders
- Cost efficiency
- Smooth inventory turnover
Example:
If your EOQ for a product is 500 units and your reorder point is 250 units, you place an order for 500 units as soon as stock falls to 250. This keeps inventory levels balanced without excessive holding costs.
How can businesses optimize reorder point in ecommerce?
Once you’ve calculated your reorder point, the next step is fine-tuning it to suit your specific business needs.
Optimization tactics include
- Leverage demand forecasting tools: Use predictive analytics to anticipate demand changes based on historical trends, market conditions, and seasonality.
- Review supplier performance regularly: If a supplier is consistently late or early, adjust your reorder point accordingly.
- Consolidate multichannel sales data: Combine sales from all platforms to get an accurate picture of demand and avoid underestimating inventory needs.
- Automate where possible: Let software handle reorder point alerts and even generate purchase orders for faster replenishment.
- Account for marketing campaigns: If you plan a flash sale or heavy promotion, temporarily raise your reorder point to meet higher expected demand.
Optimizing isn’t a one-time process; it’s an ongoing cycle of measurement, analysis, and adjustment.
What are some advanced reorder point strategies?
As your ecommerce operation grows, you can explore advanced inventory management strategies to make reorder points even more effective.
Techniques you should consider
- ABC inventory analysis: Categorize products into A (high-value, high-priority), B (mid-tier), and C (low-value, high-volume) categories. Set different reorder point rules for each group.
- Dynamic reorder points: Use software that automatically adjusts reorder points in real time based on sales patterns, lead times, and supplier performance.
- Just-in-time (JIT) inventory: Keep inventory levels low and replenish only as needed. This reduces holding costs but requires highly reliable suppliers and fast logistics.
- Safety stock segmentation: Allocate higher safety stock to top-selling or high-margin products, and lower safety stock to slow movers.
These methods allow you to tailor reorder points for different SKUs, improving efficiency and profitability.
Frequently asked questions about reorder point
Q1: Should each product have its own reorder point?
A1: Yes, each SKU has unique demand and lead time characteristics, so a one-size-fits-all ROP won’t be accurate.
Q2: How often should I review my reorder points?
A2: At least every quarter, and more frequently if your product demand is highly volatile.
Q3: What if my supplier’s lead time changes frequently?
A3: Use the longest realistic lead time in your calculations to reduce the risk of stockouts.
Q4: Can reorder points work for seasonal products?
A4: Yes, just recalculate them before peak seasons to reflect higher demand.
Q5: Is automation worth the investment?
A5: For most ecommerce businesses, yes. Automation reduces human error, saves time, and ensures timely reorders.
Summary
In summary, the Reorder Point is the specific inventory level at which a new order should be placed to replenish stock, calculated by considering the average demand during the supplier lead time plus safety stock to prevent stockouts and ensure continuous product availability.
