Difference between Reorder Point and Minimum Stock Level

Hi Cheta,

this is my understanding of the different terminologies.

re-order point is what it sounds like. The point at which you need to re-order materials. (either manualy or using an automated system).

The 'minimum stock' is another term for 'safety stock'. i.e. the level you do not want to go below in order to cope with demand variation and supply variation.

There are various views on calculating this 'safety stock' but here is a link to an intersting article.

http://www.inventoryops.com/safety_stock.htm

Once you have decided on 'safety stock' level then calculating re-order point is relatively easy as it is 'safety stock' + average demand x replenishment lead time.

Hope this helps, if other have different interpretations, please post....

John Hardwick
FIOM



John Hardwick
FIOM

hi, the Min Stock Level and the Reorder level has to be different for one very important reason. There will almost always be a Lead time for operations to put up a purchase request and then purchase to deal with suppliers and then suppliers to take time to manufacture the items and then have the items delivered to the location of use. Depending on the type of products, and the availability of ready made stocks, the lead time could be in days or even months. Supposing the lead time to have shipments sent to you is 3 months, then you should standby stock for 3 months ON TOP OF the minimum stock level. Operations has to rely on demand forecasts to establish the stock level required for the lead time. The minimum stock level can always be maintained when the reorder level takes care of the stock required during the lead time ( for delivery of stock to be purchased/ manufactured/ and delivered). Cheers