What Is Reorder Point?
Also known as: ROP, order point, reorder level
Definition
A reorder point is the inventory level at which a replenishment order is triggered. It equals expected demand during the replenishment lead time plus safety stock, so stock on hand covers usage until the new supply arrives.
Reorder Point Explained
The reorder point formula is deceptively simple: average demand per period multiplied by lead time in those periods, plus safety stock. A part consuming 40 units per week with a three-week lead time and 50 units of safety stock has a reorder point of 170. When projected available balance crosses that level, the system raises a replenishment suggestion. The subtlety is which balance to compare against: it should be on-hand plus on-order minus allocations, not just on-hand, or you will re-trigger orders that are already in transit.
Reorder point logic and MRP are different planning philosophies and should not be applied to the same item simultaneously. Reorder point is a pull, consumption-driven method that assumes reasonably steady usage and no visibility of future demand. MRP is a push, requirements-driven method that uses known future demand to time supply precisely. Running both on the same part produces duplicate orders, a common symptom right after an ERP cutover when legacy min/max values were migrated onto MRP-planned items.
Reorder point works best on C-class items with steady, independent demand: fasteners, consumables, standard hardware, and MRO. It fails badly on lumpy demand. A part used once a quarter in a lot of 500 has an average weekly demand near zero, so the calculated reorder point is meaningless, and the shop discovers the shortage only when the work order picks. Those items belong on MRP driven by the actual production plan.
Periodic review adds a wrinkle. If stock is reviewed weekly rather than continuously, the exposure window is lead time plus the review interval, and the reorder point must be raised accordingly. Many ERPs run min/max evaluation on a scheduled job rather than in real time, so the effective review period is the job frequency. Check the job schedule before concluding that a reorder point is set correctly.
Why It Matters
- Reorder points automate replenishment for the long tail of low-value parts, freeing planner attention for items that carry real dollars.
- A reorder point set without safety stock delivers only about 50 percent service, guaranteeing recurring stockouts on the cheapest parts.
- Applying reorder points to lumpy or MRP-planned demand creates duplicate supply and hidden excess inventory.
- Because it references lead time, every reorder point silently goes stale whenever supplier performance changes.
In Practice
Worked example: a fastener sells 40 per week, lead time is 3 weeks, safety stock is 50. Reorder point equals 40 times 3 plus 50, or 170 units. If the ERP evaluates min/max only in a weekly batch job, add another week of demand, raising the trigger to 210, otherwise you lose a full review cycle of coverage.
Frequently Asked Questions
What is the reorder point formula?
Reorder point equals average demand per unit of time multiplied by lead time, plus safety stock. If a part uses 25 units per day and lead time is 12 days, demand during lead time is 300. Adding 80 units of safety stock gives a reorder point of 380. Compare against on-hand plus on-order minus allocations, not on-hand alone.
When should you use reorder points instead of MRP?
Use reorder points for low-value items with steady, independent demand where the cost of planner attention exceeds the cost of a little extra inventory: fasteners, consumables, packaging, and MRO. Use MRP whenever demand is dependent on a production schedule, lumpy, or expensive enough that timing matters more than simplicity.
Related Terms
Safety Stock
Safety stock is buffer inventory carried above expected demand to protect against variability in demand and supply during replenishment lead time. In ERP it is netted out of available inventory so MRP plans replenishment before the buffer is consumed.
Lead Time
Lead time is the elapsed time between initiating an order and having the material available for use. In ERP it is the offset MRP applies when back-scheduling a planned order from its due date to its release date.
Lot Sizing
Lot sizing is the ERP rule that determines how much to order or produce in each replenishment, converting net requirements into order quantities by balancing setup or ordering cost against inventory carrying cost.
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