Reorder Point

Reorder point is the simplest piece of inventory math in the lean toolkit, and one of the most reliably miscalculated. The idea is easy: set a stock level at which you place the next order. The trap is in how that level gets calculated, how it gets visualized, and how often it gets revisited. A reorder point sitting unchecked in a spreadsheet is worse than no reorder point at all, because it gives the illusion of control while quietly drifting out of sync with reality.

"The line on the rack does what no spreadsheet can. It tells you to order before you run out, and it cannot be ignored."

How reorder point works

The basic formula is straightforward: reorder point equals average daily consumption multiplied by supplier lead time, plus a cushion of safety stock for variation. If you use 12 parts per day, your supplier takes 7 days to deliver, and you want a cushion of 24 parts, the reorder point is 108 parts. When the rack drops to 108, place the order. The next delivery arrives just as the rack reaches the safety cushion.

The two inputs that drive the math both need maintenance. Daily consumption drifts as demand or process mix changes; a reorder point set against last year's usage is usually wrong. Supplier lead time drifts as the supplier's own operations change; a supplier that used to ship in three days might now take seven, and nobody notices until the shop runs out. Reorder points need a quarterly check-in, ideally tied to a supplier review or a kanban sizing audit.

The bigger question is how the trigger gets signaled. A reorder point that lives in a spreadsheet column rarely gets caught at the right moment, because nobody is watching the column in real time. A reorder point that is a colored line on a rack, an empty bin, or a kanban card that drops the moment the bin gets pulled, that trigger gets caught every time. The math of the reorder point is the easy part. The visibility of the trigger is what makes it work.

Reorder point is the central mechanism of any replenishment pull system. It is what turns consumption into a supply signal: the customer (the next operation, the assembly line, the shop floor) takes from the shelf, and when the shelf hits the reorder point, the supplier (internal or external) makes more. No forecast. No central scheduler. Just a trigger on a rack.

Where reorder point fits on the shop floor

Picture a small machine shop that uses three sizes of aluminum bar stock as its primary raw material. Without reorder points, the buyer reviews a stock list every Friday and calls the supplier with whatever feels low. About twice a year the shop runs out of one size mid-shift and has to expedite at premium cost. The owner installs reorder points and makes them visible. Each size of bar gets a labeled location with a colored line painted on the wall behind it. Below the line, the rack is the safety cushion.

The math: each bar size has a daily consumption rate (calculated from the last six months), a supplier lead time (a week to ten days), and a safety cushion of about a week's worth. The reorder point gets translated to a number of bars and then a height on the rack. The shipping supervisor walks the rack each morning. Anything at or below the line gets a reorder placed that day. Within two months, the expedites stop. The total inventory is slightly lower than it used to be, because the cushion is now sized rather than padded. The buyer no longer reviews a Friday list because the rack is the list.

Common mistakes with reorder point

• Setting it once and never revisiting. Consumption and supplier lead time drift. A reorder point that was right two years ago is probably wrong now.
• Keeping the trigger in software only. A reorder point in a spreadsheet rarely gets caught in time. Make it physical, on the rack where the stock lives.
• Sizing the cushion to fear, not data. Bigger cushions feel safer but eat working capital. Size the cushion to actual supplier variation, not to whatever feels comfortable.
• Confusing reorder point with safety stock. Reorder point is the trigger level. Safety stock is the cushion underneath. They are different lines, and conflating them muddies the math.
• No discipline on the trigger. A reorder point that gets ignored when somebody is busy is worse than no reorder point. The line gets hit, the order gets placed. That is the rule.

Reorder point and related Lean tools

Reorder point is the trigger inside a two-bin system, which is the simplest physical implementation. It sits inside any supermarket as the line at which the supplier process makes more. The cushion under the reorder point is safety stock, sized to absorb supplier variation. And reorder points are the foundation of replenishment pull, the broad category of pull systems that work by refilling consumed stock rather than producing to a sequenced order.