Reorder Point

The level of inventory which triggers an action to replenish that particular inventory stock.

What is Reorder Point?

The reorder point is a critical level of inventory at which a company needs to place a new order to replenish stock before it runs out. It is calculated based on factors such as lead time, demand variability, and desired service level. Essentially, the reorder point ensures that a company always has enough inventory on hand to meet customer demand while minimizing the risk of stockouts. By setting the reorder point at the appropriate level, businesses can avoid disruptions in production or customer service caused by inventory shortages. Maintaining an accurate reorder point is crucial for efficient inventory management, as it helps optimize stock levels, reduce holding costs, and improve overall supply chain performance. Companies often use advanced forecasting techniques and inventory management software to determine the optimal reorder point for each product in their inventory. By monitoring inventory levels and adjusting reorder points as needed, businesses can achieve a balance between carrying enough stock to meet demand and avoiding excess inventory that ties up capital.