The Procurement Glossary » Reorder Point (ROP)

Reorder Point (ROP)

Inventory & Logistics

Also known as: ROP

Definition

The inventory level at which a replenishment order should be placed to avoid running out before it arrives.

Explanation

The reorder point equals expected demand during the lead time plus safety stock. Hitting it triggers a new order. It is the trigger mechanism behind most replenishment systems, manual or automated.

Example

When stock of the fastener drops to 500 (its reorder point), the system raises a replenishment PO.

Related terms

• Safety Stock — Extra inventory held as a buffer against variability in demand or supply, to reduce the risk of stockouts.
• Lead Time — The elapsed time between placing an order and receiving the goods.
• Economic Order Quantity (EOQ) — The order quantity that minimises total inventory cost by balancing ordering cost against holding cost.
• Replenishment — The process of restocking inventory to maintain target levels as items are consumed.

Frequently Asked Questions

What is Reorder Point (ROP)?

The inventory level at which a replenishment order should be placed to avoid running out before it arrives. The reorder point equals expected demand during the lead time plus safety stock. Hitting it triggers a new order. It is the trigger mechanism behind most replenishment systems, manual or automated.

Can you give an example of Reorder Point (ROP)?

When stock of the fastener drops to 500 (its reorder point), the system raises a replenishment PO.

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