Inventory operations
Reorder point
The stock level that should trigger a purchase order.
Formula
(velocity x lead time) + safety stock
The reorder point is the stock level at which the next purchase order has to be placed: the units that will sell during the supplier's lead time, plus a safety cover for the weeks when demand or the supplier misbehaves. Crossing it is the signal, not the empty shelf.
It turns a judgement into a threshold. At 12,67 units a day, a 45-day lead time and a fortnight of safety cover, the trigger is about 748 units, which is a number a warehouse report can watch rather than a feeling somebody has on a Friday.
The comparison is against the stock position, not the shelf: units on hand plus units already on order. Forgetting the inbound shipment is the classic double order, and the cash for it leaves immediately while the stock arrives twice.
The lead time to use is the observed one, door to saleable shelf, including customs and putaway. The agreed lead time is a plan, and stock has to survive what actually happens rather than what was promised.
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