What is a reorder point?

Cost-accounting textbooks in India also use related levels, such as minimum and maximum stock levels, which are covered in the table below.

How a reorder point works in an Indian D2C or omnichannel warehouse

The formula

Reorder point (ROP) = (average daily units sold × lead time in days) + safety stock

It assumes daily demand is roughly steady and that lead time is counted in days from the moment you raise the order to the moment the stock can be picked.

The textbook variant. Cost-accounting courses (CA Inter, CMA, B.Com) often teach:

Reorder level = maximum daily usage × maximum lead time

This builds the safety margin into the worst case instead of adding it separately. Both answers are correct for their purpose; the ecommerce version below is easier to adjust per channel and per sale.

Steps for an online brand

1. Add up daily sales across every channel. One stock pool usually sells on the website, Amazon, Flipkart and other marketplaces, and supplies quick-commerce purchase orders. Daily usage is the sum, not one channel’s figure.
2. Count the full lead time. Supplier processing and dispatch, transit, unloading, the GRN check and putaway all happen before a unit can be sold.
3. Add safety stock for demand spikes and late deliveries.
4. Set one reorder point per SKU, because sizes, colours and flavours sell at different speeds.
5. Review it when sales speed or the supplier’s lead time changes, and before every big sale.

Example. A SKU sells 40 units a day: 12 on the website, 18 on Amazon and 10 on Flipkart. The supplier takes 7 days to deliver, and transit, GRN and putaway take 2 more, so the lead time is 9 days. Safety stock is 120 units.

ROP = 40 × 9 + 120 = 480 units. When stock on hand falls to 480, the purchase order goes out. The numbers are illustrative.

Before a sale. If the same SKU sold 120 a day during the last festive sale, the reorder point for the weeks before the next one is 120 × 9 + 120 = 1,200 units. Set it back to 480 after the sale, or the warehouse fills with stock that sells at the normal rate.

Reorder point and the levels around it

Term	What it answers	Formula (illustrative inputs from the example)
Reorder point (reorder level)	When to order	40 × 9 + 120 = 480 units
Reorder quantity	How much to order	Set by the brand; often the EOQ or a supplier’s minimum order
Safety stock	How much spare stock to hold for surprises	See safety stock
Minimum stock level (textbook)	The level stock should not fall below	Reorder level − (normal daily usage × normal lead time)
EOQ (economic order quantity)	The order size with the lowest total ordering and holding cost	√(2 × annual demand × cost per order ÷ holding cost per unit per year)

Common mistakes

• Using one channel’s sales. A reorder point built on website sales alone runs out when Amazon and Flipkart sell from the same stock.
• Ignoring the inbound time. Lead time ends when stock can be picked, not when the supplier dispatches.
• Setting it once and never updating it. Sales speed changes with seasons, prices and listings.
• One reorder point for every SKU. A slow colour and a fast colour of the same product need different numbers.
• Not raising it before a sale. The normal reorder point leaves the shelf empty halfway through a sale week.

Related metrics

• Days of cover = stock on hand ÷ average daily units sold. Example: 1,000 ÷ 40 = 25 days.
• Stockout days = days in a period when a SKU had no sellable stock. Example: 3 stockout days in 30 is 10% of the month lost for that SKU.
• Inventory turnover ratio = cost of goods sold ÷ average inventory. Reorder points set too high push turnover down.

Reorder points in the Indian context

• Sale seasons. Marketplace sale events such as Flipkart’s Big Billion Days and Amazon’s Great Indian Festival, and the Diwali and wedding seasons, lift daily sales for weeks. Use the last sale’s daily rate for the weeks before the next one.
• Interstate stock movement. CBIC’s e-way bill guide says an e-way bill is generated for movement of goods of consignment value more than ₹50,000, whether the movement is a supply or not. If your supplier ships from another state, the paperwork is part of the lead time; for movement within a state, some states set a higher limit, so check your state’s rule.
• Quick-commerce purchase orders. Platform POs arrive in larger, less regular lots than consumer orders. Count them in daily usage over a longer window, or plan them separately.