Safety stock, reorder point and EOQ: the formulas
These three numbers answer: when should I order, how much, and how much buffer do I need? ReorderLab calculates them for every SKU. This page documents exactly how.
Safety stock
SS = z × σd × √LT
- z from your service level: 90% = 1.28, 95% = 1.64, 97.5% = 1.96, 99% = 2.33, 99.9% = 3.09.
- σd = standard deviation of daily demand. We convert from your monthly standard deviation: σmonthly ÷ √30.4.
- LT = supplier lead time in days.
If you do not supply a demand standard deviation, we assume monthly variability of 30% of average monthly demand. That is a reasonable starting point for steady industrial items; provide real numbers for erratic ones.
Reorder point
ROP = average daily demand × LT + SS
When on-hand stock (plus anything on order, if you track it) falls to the ROP, place an order. ReorderLab flags these as "Reorder now". Note: the on-hand figure should include open purchase orders if you want to avoid double-ordering.
Economic order quantity
EOQ = √(2 × D × S ÷ H)
- D annual units, S cost per order, H holding cost per unit per year (holding rate × unit cost; 20-30% is typical).
EOQ balances ordering cost against holding cost. Round to supplier pack sizes and minimums in practice.
Excess and dead stock
An item is excess when days of supply (on hand ÷ daily demand) exceeds your threshold (default 180 days). It is dead with stock but zero annual usage. Excess value counts only the quantity above ROP + EOQ.
Worked example
Bearing: 2,100 units/yr, 21 day lead time, monthly σ = 90, 95% service. Daily demand = 5.75. σd = 90 ÷ 5.51 = 16.3. SS = 1.645 × 16.3 × 4.58 = 123.1, rounded up to 124. ROP = 5.75 × 21 + 123.1 = 243.9, rounded up to 244.