Glossary · Management
Reorder point
The inventory level at which a new order is placed: expected demand during the supply lead time plus safety stock.
- Field
- Management
- Examined in
- CBA-CPM
- Learning objectives
- 1
Where the CBA Standards examine it
In the specimen paper
Bayan Medical Group, a Kuwaiti hospital group, stocks a dialysis filter set used at a steady 40 sets a week. The supplier's lead time averages three weeks. Safety stock for the line has been calculated at 25 sets, and replenishment is ordered in batches of 40. The planner proposes a reorder point of 120 sets. What reorder point should be set?
Answer
145 sets: lead time demand plus the calculated safety stock.
Why that is the answer
The reorder point answers when to order, so it must cover everything that will be consumed between raising the order and receiving the delivery, plus the buffer held against variation. Forty sets a week over a three-week lead time is 120 sets of ordinary consumption, and the 25 sets of safety stock are added to that, giving 145. The planner's 120 is the trigger for a line carrying no buffer at all: order at 120 and the safety stock is eaten on every normal cycle, so it is never there for the late delivery it was calculated to cover. How much to order is a separate question with its own arithmetic, and it does not belong in this one.
Related terms
- Safety stockManagement
Inventory held above expected demand to protect against variation in demand or supply lead time.
- Lead timeManagement
The total time from a request or order to its delivery, including waiting time as well as processing time.
- Economic order quantity (EOQ)Management
The order size that minimises the combined cost of ordering and holding inventory, calculated as the square root of twice annual demand times the cost per order, divided by the annual holding cost per unit.