reorderpoint

A reorder point is the inventory level at which a new order should be placed to replenish stock before it runs out.

In a continuous review system, inventory is monitored and an order is triggered when on-hand plus on-order inventory reaches the reorder point. The basic formula is ROP = demand during lead time plus safety stock.

Demand during lead time can be treated deterministically as d × L, where d is the average demand per time unit and L is the lead time. If demand is variable, the reorder point can be set as μDL + zσDL, where μDL is the average demand during lead time, σDL is the standard deviation of demand during lead time, and z corresponds to the desired service level.

Safety stock buffers against variability in demand or lead time. A higher service level or longer variability typically leads to a higher safety stock and thus a higher reorder point.

Reorder point is a key concept in continuous review inventory systems; periodic review systems use a different approach, such as an order-up-to level, to determine when and how much to order.

Practical considerations include accurate demand forecasting, stable lead times, and the cost trade-offs between holding costs and stockouts. The reorder point concept is widely used across manufacturing, retail, and enterprise resource planning systems to balance service levels with inventory costs.