Reorder point
Also called ROP, order point
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is reorder point?
A reorder point is the stock level at which a distributor places a new purchase order for an item, set so the new stock arrives before the old runs out. The usual formula is reorder point = average daily usage × lead time in days + safety stock.
How it works
The stock level compared with the reorder point should be available stock plus what is already on order, not on hand alone; otherwise the system reorders again while the last order is still in transit.
Reorder point example
Gloves sell 4 cases a day, the supplier takes 5 days and the buyer keeps 10 cases of safety stock, so the reorder point is 4 × 5 + 10 = 30 cases.
Related terms
- Safety stockSafety stock is extra inventory a distributor keeps to cover unexpected demand or late supplier deliveries, so it doesn’t run out before the next shipment.
- Min/maxMin/max is a simple replenishment method in which each item has a minimum and a maximum stock level that trigger and size each new order.
- Economic order quantity (EOQ)Economic order quantity (EOQ) is the order size that minimizes the combined cost of ordering and holding an item with steady demand.
- Lead timeLead time is the time between placing an order and receiving the goods.
- Available inventoryAvailable inventory is the quantity of an item a distributor can sell right now: the stock on hand minus the stock already committed to open orders.
