Understanding the Reorder Point Definition is Vital
Understanding the reorder point definition is a vital element of understanding and being able to effectively execute spare parts management. With a clear understanding of the reorder point definition companies can avoid two key problems:
- The problem of overstocking due to over-estimating the reorder point.
- The problem of stock outs due to under-estimating the reorder point.
Only by having a clear understanding of the reorder point definition can you get this balance right.
Reorder Point Definition
Here is the SparePartsKnowHow.com reorder point definition (ROP):
the level of inventory which triggers the ordering of replenishment stocks.
The ROP is also sometimes referred to as the trigger point and in a Max-Min system is also the MIN or Minimum.
But there is more to understanding this than just knowing what the ROP is. It is just as (or maybe even more) important, to understand that there are two key elements that make up the ROP: cycle stock and safety stock.
The cycle stock component is the stock that you expect to use during the time it takes for replenishment stock to arrive after to trigger the need to reorder stock. For example, if you use 1 part per week and it takes 4 weeks for the replenishment stock to arrive, then your cycle stock is 4.
The safety stock component is the stock that you carry just in case the delivery is late or you use more than expected during the replenishment period.
The key to calculating your ROP is to clearly understand these two elements of the ROP and calculate them separately.
Please note: In some ERP systems the replenishment order is not triggered until the inventory holding goes below the MIN level. The logic of this is that the MIN is the lowest level that is safe to hold without the need to reorder. So please check which approach your ERP takes.
Source: Smart Inventory Solutions 2nd Ed. Phillip Slater. Published by Industrial Press
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Posted by: Phillip Slater