Reorder Point

The reorder point (ROP) is a minimum stock quantity for an item. When the on-hand inventory level falls to the ROP, it signals the need to place a new purchase order. The goal is to receive the new shipment just as the last of the on-hand stock is used. This timing prevents stockouts that can halt production.

Calculating the reorder point depends on two main factors: lead time demand and safety stock. Lead time demand is the amount of stock you expect to use during the supplier's lead time. Safety stock is extra inventory held as a buffer against unexpected increases in demand or delays in delivery. A well-calculated ROP balances the cost of holding inventory with the risk of production downtime.

On the shop floor, an accurate ROP ensures that materials like fasteners, raw materials, or sub-assemblies are always available for production lines. For example, a furniture manufacturer needs a steady supply of a specific wood screw. By setting a reorder point, they avoid running out, which would stop the assembly line and delay customer orders. This system automates a critical part of inventory management.

Manufacturers implement reorder points using their Enterprise Resource Planning (ERP) or inventory management systems. These systems track inventory levels in real time. When a transaction (like issuing material to a work order) causes the stock level to hit the ROP, the system can automatically generate a purchase requisition. This alerts the purchasing department to place an order without manual intervention.