Reorder Point

Topics: Inventory Pages: 1 (368 words) Published: August 20, 2012
Reorder Point
As a result to today’s uncertain economy, companies are searching for alternative ways to stay competitive. One wrong move of a company in doing their forecasting and inefficient inventory control, can lead to multiple product stock outs and back orders. This issue has caused sales loss as well as profit loss, which companies cannot afford to lose if they want to stay competitive. To resolve this issue, the companies are using inventory control model which is the ROP also known as the Reorder Point. By doing so, the company could also reduce the total cost associated with their inventory. The Reorder Point is the inventory level of an item which signals the need for placement of a replenishment order, taking into account the consumption of the item during order lead time and the quantity required for the safety stock. In other words, it is threshold at which you should order more products to prevent shortages while also avoiding overstock ( It is the point at which time a stock replenishment requisition would be submitted to maintain the predetermined or calculated stockage objective. In summary, the efficiency of a replenishment system affects how much delivery time is needed. Since the delivery time stock is the expected inventory usage between ordering and receiving inventory, efficient replenishment of inventory would reduce the need for delivery time stock. And the determination of level of safety stock involves a basic trade-off between the risk of stockout, resulting in possible customer dissatisfaction and lost sales, and the increased costs associated with carrying additional inventory.

Another important technique used along with the Economic Order Quantity is the Reorder In determining the reorder point the following three factors need to be at hand: 1. Demand - Quantity of inventory used or sold each day

2. Lead Time - Time (in days) it takes for an order to arrive when an...
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