On-hand 1,050 plus PO 200 = 1,250—below ROP 1,380. Why did the system not order?
Check alert setup: some ERPs compare on-hand only, not on-hand + on-order. Fix logic before blaming the buyer.
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Reorder Point
Reorder Point: plain-English definition, formula, worked example, how to interpret the result, peer-based benchmark guidance, common mistakes, and management actions in the ZBI Business Control Library.
What is Reorder Point?
Reorder point is the inventory level that tells you to place the next order—enough to cover expected usage during supplier lead time plus your safety stock. When on-hand plus on-order hits ROP, you buy. For MRO at 90 units per day, ten-day lead time, and 480 units safety, ROP = 1,380. Wrong ROP floods the warehouse or stops the line; ERP automation only helps when master data reflects reality, not the lead time on a three-year-old supplier brochure.
Why Reorder Point matters
ROP too low means expedited freight and production waiting on bolts—margin and delivery dates take the hit. ROP too high ties cash on shelves you already buffered with safety stock. When lead time slips from ten to twelve days and nobody updates master data, on-hand 1,050 plus PO 200 = 1,250 looks fine against old ROP 1,380 until the line stops. Multi-site businesses running one national ROP miss regional stockouts. ROP is where policy meets execution; ignore it and buyers either fire orders at zero or ignore alerts that cry wolf.
Formula and variables
Reorder Point = (Average Daily Usage × Lead Time) + Safety Stock
Average daily usage — stable recent consumption rate in units.
Lead time — days from order release to goods available for use.
Safety stock — buffer from your safety-stock policy.
Excel: =B2*B3+B4
Real business example
MetalPro Industries d.o.o., a EUR 2M manufacturer in Slavonski Brod, runs MRO bolts: usage 90/day, quoted lead time ten days (twelve days experienced last quarter), safety stock 480. ROP = 900 + 480 = 1,380. On-hand 1,050, open PO 200 → projected 1,250, below ROP. Planner releases PO for EOQ 2,000 units. After lead-time slip, master data updates to twelve days; ROP rises to 1,560 and prevents a near stockout.
How to interpret the result
ROP triggers action—alerts must fire before you hit zero.
- ROP too low causes stockouts; too high duplicates safety logic in oversized standing stock.
- Use experienced lead time from GRN data, not supplier marketing quotes.
- Include on-order quantity when comparing to ROP.
- Multi-warehouse networks need site-level ROP, not one national figure.
Benchmark context
Judge ROP by stockout frequency and emergency order count, not a universal unit level. Compare parameters to actual lead-time distribution from GRN statistics. If alerts fire weekly but stockouts are zero, you may be over-buffered; if stockouts persist, usage or lead time inputs are wrong.
Red flags
- Projected on-hand + PO below ROP with no PO released—master data or process failure.
- ROP alerts ignored because they fire daily—parameters too high; buyers lose trust in system.
- Stockouts on A-class while ROP unchanged after lead time increased—EUR 50k+ line downtime risk.
- Emergency orders exceed 5% of PO lines month-on-month—ROP systematically too low.
- ROP raised without revisiting safety stock—double buffering cash in cycle and safety layers.
Common mistakes
- Triggering orders at zero instead of at ROP.
- Using annual average usage for seasonal items without adjustment.
- Forgetting in-transit stock when comparing on-hand to ROP.
- Single global ROP for items stored in three regional warehouses.
- Not updating ROP after supplier or routing changes.
What should management do next?
- Audit top 50 SKUs monthly: ROP versus actual minimum on-hand before replenishment.
- Sync lead-time master data with last 90 days GRN statistics every month.
- Document override rules when planners manually change system suggestions.
- Test ROP with peak-season usage on A-class before approving safety-stock cuts.
- Pair ROP review with EOQ and MOQ constraints in weekly procurement meeting.
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FAQ
Lead time moved from ten to twelve days—do I change ROP or safety stock?
Update lead time first; ROP = usage × lead time + safety. Recalculate ROP to 1,560 before debating safety.
Can I use one ROP for all three warehouses?
Only if usage and lead time are identical. Otherwise you stockout in Osijek while Zagreb holds excess.
MOQ is 2,000 but ROP implies orders of 900—what do I do?
Order MOQ but revisit ROP and safety so you do not systematically overstock every cycle.
How often should production challenge ROP on MRO items?
When line stops for stockouts or when emergency freight on MRO exceeds EUR 5k in a month.
Summary
Reorder point tells you when to order based on usage, lead time, and safety stock. Keep master data honest and review triggers against stockouts and overstock outcomes.
Reviewed by ZBI Business Control Library · Last updated 2026-06-15