Reorder point
In one sentenceThe inventory level at which a new purchase order must be issued, equal to average daily usage × lead time + safety stock.
Simply put
When an item's balance falls to this point you order immediately, so the new goods arrive before what you have runs out.
If you order after this point the item may run out and the customer goes elsewhere; if you order well before it, inventory piles up.
Worked example
The same pharmacy: average sales of 20 boxes per day, a lead time of 5 days, and safety stock of 50 boxes.
Usage during the lead time20 × 5 = 100 boxes
+ Safety stock50 boxes
Reorder point = 100 + 50150 boxes
Formula: Average daily usage × lead time + safety stock
Don't confuse it with
Economic order quantityThe reorder point decides when to order, and the economic order quantity decides how much to order.
in FullScreen ERP
Automatic orders in Purchases prepare a purchase order for items below their reorder level, approved with one click, with suggested quantities based on turnover rate. Purchasing and suppliers