Reorder Point and Order Cycle factor

October 24, 2013 at 5:26 PMIan Benoliel

A reorder point is great tool to identify which products to order from your suppliers.   Generally the reorder point is defined as lead time demand plus safety stock.     So lets say your lead time is 30 days and during that period your usage will be 70 units and safety stock is 30 units making the reorder point 100 units.    Now lets assume you have 105 units in stock and your next PO will be in 30 days.     This product will not be flagged for reorder because it is not below the reorder point.   By the time you issue your next purchase order,  you will have 35 units left or 15 days supply but the product will not arrive for another 30 days which will result in back order of 35 units!   

To avoid this issue, safety stock should include a factor for order cycle which is generally demand until the next order cycle.  Revisiting the above example, if the reorder point where to include 170 units then the product would be flagged during the reorder analysis and a back order avoided.   



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Kellie Krome
United States Kellie Krome says:

I  believe  you have mentioned  some very interesting points ,  thankyou  for the post.


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