Reorder point and safety stock
Order too late and you run out while the order arrives; order too early and you tie up money in stock. Work out the stock level at which you should reorder.
Reorder point
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Lead-time demand
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Safety stock covers
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Inventory position
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You should order
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How it is calculated
- Lead-time demand = daily sales × days the supplier takes.
- Reorder point = lead-time demand + safety stock.
- Inventory position = stock on hand + orders in transit. If it is at or below the reorder point, it is time to order.
Assumptions
- Steady daily sales.
- Use the same day convention (calendar or business days) in every figure.