What Is a Reorder Point?

The reorder point is used to specify the number of units of goods when the replenishment ordering strategy is activated. Replenish orders as soon as the inventory is below the reorder point. When there is uncertainty in the demand or completion cycle, an appropriate safety stock must be used to buffer or compensate for the uncertainty. Reorder point = purchase lead time consumption + safety stock.

Reorder point

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The reorder point is used to specify the number of units of goods when the replenishment ordering strategy is activated. Replenish orders as soon as the inventory is below the reorder point. when

The premise of the reorder point is that the material consumption rate and the procurement lead time are unchanged. The material consumption rate refers to the consumption of materials in the production process; the purchase lead time refers to the period required for each material from the time the order is placed to the time it is received in the warehouse.

Take ERP implementation examples for illustration. Known manufacturing companies and

In order to ensure the smooth progress of production and operation activities, an enterprise must purchase inventory several days in advance, and the number of days in advance is the order lead time. In general, the order lead time should be equal to the number of delivery days. Under the condition of pre-purchase, the company reissues the order form, and the inventory quantity is the reorder point. In general, when considering insurance inventory, the quantity at the reorder point (R) should be equal to the product of the delivery time (L) and the average daily demand (d) plus the insurance reserve (B). The expression of the reorder point model is:

R = dx L + B (4 -4)

This reorder point model with insurance reserves is very useful in the company's inventory management and control, and is a signal that the company should issue an order. However, during the implementation of ERP, it was noted that the formula is conditional, and it is not true under any conditions.