what is a reorder point

what is a reorder point is the inventory level at which a business needs to reorder products to avoid running out of stock. This concept is vital in inventory management, as it helps businesses maintain optimal stock levels and prevent stockouts. The reorder point is typically calculated based on the lead time (the time it takes for a supplier to deliver new stock) and the average sales during that lead time. Once inventory reaches the reorder point, a new order should be placed to replenish stock before it runs out. Calculating the reorder point accurately ensures that a business can continue to meet customer demand without overstocking and tying up too much capital in inventory.