Reorder point
Reorder point (also known as ROP) is a central concept in inventory management and supply chain management. It defines the precise inventory level that automatically triggers a new order to replenish stock. The purpose is to ensure that new goods are received before you risk running out, thereby maintaining a high service level without tying up unnecessary capital.
What is a reorder point?
A reorder point is a dynamic buffer that ensures you don't run out of an item in the period from when you order it until you receive it again.
It's a critical balance between:
- The risk of stockout: Disappointing customers and losing sales.
- The cost of inventory carrying: Having too much money tied up in goods that take up space and don't sell.
- A correctly set reorder point is the foundation for efficient and automated inventory management.
What is the reorder point used for?
A reorder point is used to automate and standardize the reordering process.
It functions as an alarm bell that tells the system or buyer: "Now it's time to order more of this item."
The primary purposes are to:
- Ensure high service levels and customer satisfaction.
- Minimize capital tied up in inventory.
- Reduce manual monitoring and free up time for the purchasing department.
- Create a stable and predictable flow in the supply chain.