Definition
The reorder point formula gives you a trigger expressed in units. When your on-hand inventory reaches this number, you place the next order. The reorder point formula has two parts: how much you’ll sell during the lead time (expected lead time demand) and a buffer for variability (safety stock). Set the trigger too high and you tie up cash in slow inventory. Set it too low and you stock out. Plug your inputs into our free reorder point calculator to see the trigger value in seconds.
For Amazon FBA, “on hand” should include FBA stock + reserved (transferring) + AWD if AWD can be pulled inside the lead time. The lead time itself must include every step: PO placement, supplier production, ocean or air freight, US port clearance, prep center handling, shipment to FBA, and FBA receive (which can take 1-2 weeks alone in Q4). Domestic suppliers compress this to 21-35 days; China and Vietnam add 45-60 days on top of production.
The reorder point formula isn’t the same as the order quantity. ROP tells you WHEN to order. Economic order quantity tells you HOW MUCH.
Reorder Point Formula
Example: top-SKU at 38 units/day
A private label seller with a top SKU averaging 38 units/day, lead time 70 days from China (production 30 + ocean freight 25 + port clearance 5 + prep + FBA receive 10), targeting a 95% service level with a calculated safety stock of 510 units:
ROP = (38 × 70) + 510
= 2,660 + 510
= 3,170 unitsWhen FBA on-hand + AWD-pullable + in-transit inventory drops to 3,170 units, place the next PO. If the seller waits until 2,500, they’re already 5 days late and will stock out before the new shipment arrives.
If they switch to a domestic supplier with a 28-day lead time:
ROP = (38 × 28) + 250 (safety stock recalculated for shorter lead time)
= 1,064 + 250
= 1,314 unitsThe shorter lead time cuts the ROP in half AND lowers safety stock requirements. Working capital tied up in pipeline drops by ~$20K on this single SKU at $11 COGS.
Why reorder point matters for FBA sellers
Two FBA-specific gotchas push this math: (1) FBA receive time has been creeping up, especially in Q4. Build 10-15 days into your lead time component for receive, even if your shipment “arrives” at the FC earlier. (2) Restock limits can artificially limit how much of your reorder makes it into FBA. Plan splits across FBA + AWD when modeling lead time demand.
The reorder point is also the input that most directly controls stockout rate. Most FBA stockouts trace back to a wrong daily-demand assumption (too short a window, missed seasonality) or an understated lead time (forgetting FBA receive). Fix those two and stockout frequency drops dramatically without holding more cash in inventory.
Common mistakes
- Excluding FBA receive time from lead time. Most calculators stop at FC arrival. That can cost you 7-14 days of cover.
- Using a single average for daily demand. Use trailing 30 days for fast-moving SKUs and trailing 90 days for slower ones to balance responsiveness vs. noise.
- Forgetting in-transit inventory. When ROP triggers, check whether you have units already on the water from a prior PO. Re-ordering on top of an in-transit shipment causes overstock.