The reorder point is known as the optimal point to order new stocks and replenish your inventory.
Let’s say you have a new product out and it’s flying off the shelves fast. You want to keep up with demand so that customers keep coming back. If you don’t plan ahead, you might be left with a scenario where your shelves are empty — forcing your customers to the competition.
Having said that, there’s also something called safety stock which you can use as a last resort.
This is if there are any unforeseen delays with stock replenishment. The reorder point formula can be written as (average daily unit sales x delivery lead time) + safety stock.
This will look like:
(Average Daily Unit Sales Delivery Lead Time) + Safety Stock