Reorder Point (ROP) Analysis
The reorder point is the inventory level at which an order should be placed to replenish stock before it runs out.
Where:
- Demand During Lead Time = Average Demand × Lead Time
- Safety Stock = Buffer for demand and lead time variability
Select Demand and Lead Time Scenario
Choose the model that matches your demand and lead time characteristics:
Constant Demand and Lead Time
Use when both demand and lead time are stable with little variation.
Variable Demand (Constant Lead Time)
Use when demand varies but lead time is relatively stable.
Variable Lead Time (Constant Demand)
Use when lead time varies but demand is relatively stable.
Variable Demand and Lead Time
Use when both demand and lead time have significant variability.
Reorder Point Results
Reorder Point
Order When Inventory Reaches This Level
Safety Stock
Buffer Stock
Demand During Lead Time
Average Expected Demand
Service Level
Probability of No Stockout
Safety Stock Calculation
| Component | Value |
|---|---|
| Z-Score (Service Factor) | |
| Demand Variability | |
| Lead Time Variability | |
| Combined Variability |
Interpretation Guidelines
| Service Level | Z-Score | Typical Use Case |
|---|---|---|
| 85% | 1.04 | Low-cost items, minor stockouts acceptable |
| 90% | 1.28 | Standard products, moderate stockout tolerance |
| 95% | 1.65 | Most common target for important items |
| 99% | 2.33 | Critical items where stockouts are very costly |
| 99.9% | 3.09 | Extremely critical items (e.g., medical supplies) |
Practical Examples
Example 1: Constant Demand & Lead Time
Demand: 20 units/day, Lead Time: 5 days, Safety Stock: 10 units
ROP = (20 × 5) + 10 = 110 units
Example 2: Variable Demand
Avg Demand: 25 ± 5 units/day, Lead Time: 4 days, Service: 95%
ROP = (25 × 4) + (1.65 × 5 × √4) = 100 + 16.5 = 116.5 units
Example 3: Both Variable
Avg Demand: 30 ± 6 units/day, Lead Time: 7 ± 1.5 days, Service: 90%
ROP = (30 × 7) + (1.28 × √(6²×7 + 30²×1.5²)) = 210 + 64.6 = 274.6 units
Reorder Point Model Selection Guide
| Model | When to Use | Key Assumptions |
|---|---|---|
| Constant | Stable demand and reliable suppliers | No variability in demand or lead time |
| Variable Demand | Demand fluctuates but lead times are reliable | Only demand varies, lead time is constant |
| Variable Lead Time | Demand is stable but suppliers are inconsistent | Only lead time varies, demand is constant |
| Both Variable | Both demand and lead times fluctuate | Both demand and lead time have variability |