Reorder Point

The reorder point (ROP) is the on-hand stock threshold at which a new replenishment order is fired. It corresponds to the lower-case 's' in a continuous-review (s,S) policy (#004); in a periodic-review (R,S) system, an order-up-to S is issued when on-hand falls below s at review time. The logic is simple: stock must cover average demand over the lead time (d·L) and add a buffer for demand and lead-time uncertainty (safety stock), so ROP = d·L + SS. With deterministic demand and lead time, ROP would equal d·L exactly — in practice neither is deterministic. The calculation needs three inputs: mean daily demand, mean lead time, and the target service level (e.g. 95%). High-velocity A-class SKUs typically reorder automatically via barcode scan; low-velocity C-class SKUs are reviewed manually. Almost every SMB ERP carries a per-SKU ROP field, but most firms set it once and never refresh it — causing systematic overstock or stockout on seasonal items. ROP should be recomputed not annually but whenever demand pattern shifts meaningfully — typically every quarter. Foundational reference for (s,S): Scarf (1960); applied survey: Silver, Pyke and Peterson (1998).