Sabit Trumov

Chapter 01Materials ManagementArticle 1.2

Reorder Point

Reorder point links demand during replenishment lead time with the protection provided by safety stock.

Inventory planning · MRO spares5 min readDecision Lab available

  1. ProblemReplenishment that starts too late, or far too early.
  2. SignalsDemand pattern, lead time, safety stock, criticality, planned work.
  3. DecisionKeep, update, plan separately, or review the assumptions.
  4. ControlAssumptions recorded and reviewed when they change.

01Business problem

Every stocked item needs an answer to one question: at what stock position should the next replenishment be triggered? Trigger too late and stock runs out while the order is still on its way. Trigger too early and capital sits on the shelf.

In SAP the answer is often a single field, set once and rarely revisited. That number only works while the assumptions behind it hold: the demand rate, the lead time and the protection chosen against uncertainty. In maintenance and MRO inventory those assumptions change more often than the setting does.

02Core concept

A reorder point is the stock position at which replenishment should be triggered to cover expected demand during the replenishment lead time, plus safety stock against uncertainty in that demand and in the lead time.

It is not a target stock and not a forecast. It is a trigger, valid under defined assumptions, and those assumptions fit some materials better than others:

  • Stable consumption, such as filters changed on fixed intervals: the classic model works reasonably well.
  • Intermittent MRO demand: months of zero followed by a sudden issue. An average describes this badly.
  • Maintenance-driven demand: the quantity follows the work plan, so the plan is a better guide than history.
  • Long lead-time spares: an error in lead time moves the whole trigger point.
  • Critical spares: the consequence of a stockout, not consumption, decides how much to hold.
  • Planned shutdown demand: a known, one-off quantity that should be planned and reserved, not averaged into the reorder point.

This is why MRO materials rarely behave like retail stock with continuous consumption.

03Decision rule

Use the reorder point formula where demand behaves like consumption. Where demand follows the maintenance plan, the shutdown scope or the consequence of failure, set the level by those drivers and record why.

Before accepting a calculated reorder point, check that the lead time is current, that the history is free of one-off events, and that the criticality and the equipment it serves have not changed.

04Signals and inputs

Average demand
Usage rate over a clean, representative period.
Demand pattern
Steady, intermittent or driven by planned work.
Lead time
Current time from requirement to available stock.
Lead-time variability
How far actual deliveries move from the plan.
Safety stock
Protection held against demand and lead-time uncertainty.
Criticality
Consequence for the plant if the item is not available.
Planned work
Shutdown scope and campaigns that create known demand.
Installed population
How many units of equipment the spare serves.

05Model

From formula to setting
  1. 01Demand patternStable, intermittent, maintenance-driven or one-off?
  2. 02Lead timeCurrent, confirmed replenishment time.
  3. 03Formula resultExpected demand during lead time plus safety stock.
  4. 04Context checkCriticality, planned work, abnormal history, equipment changes.
  5. 05Setting decisionKeep, update, plan the one-off demand separately, or review first.
ROP = Demand during lead time + Safety stock

Demand during lead time is usually the average demand rate multiplied by the lead time, in the same time unit. Safety stock is a deliberate assumption: how much protection the item needs against variability in demand and supply.

One common statistical approach sizes safety stock from the variability of demand during lead time and a chosen service level. It assumes reasonably regular, roughly normally distributed demand and a stable lead time. Those assumptions often do not hold for slow-moving and intermittent spares, where the result can be badly wrong. Any single safety-stock formula is a model with stated assumptions, not a universal rule.

06Worked example

Illustrative example

A consumable with a lead-time change

ROP = 2 × 30 + 10 = 70 units

An item is used at about 2 units per day, the supplier lead time is 30 days, and 10 units of safety stock are held. Replenishment should be triggered when the stock position falls to 70 units.

Now the supplier confirms that the lead time has moved to 45 days. With the same assumptions the trigger becomes 2 × 45 + 10 = 100 units. If the system still holds 70, stock runs out about 10 days before the new order arrives, even though the stored reorder point was mathematically correct when it was set.

07Professional judgement

A mathematically correct reorder point can still be operationally wrong.

It is wrong when the lead time in the system is years old, when the history includes a one-off shutdown issue treated as normal use, when the equipment it serves has been replaced or multiplied, when obsolete items still carry history, or when the same part exists under two material numbers and the demand is split between them.

For critical spares, low consumption does not mean low importance. A part used once in several years can still justify stock if its absence stops production and replacement takes months. That decision is not made by the formula. It is made by people who understand the consequence, and it should be recorded as such.

08Failure modes

  • Stale lead time

    Orders are triggered too late and stock runs out before delivery.

    ControlReview lead times against recent deliveries.

  • Abnormal consumption in history

    A one-off issue inflates the average and the stock level.

    ControlExclude or flag one-off events before calculating.

  • Shutdown usage treated as normal

    Routine stock is sized for a peak that will not repeat.

    ControlPlan shutdown quantities separately and reserve them.

  • Changed equipment population

    Spares are sized for equipment that no longer exists or has multiplied.

    ControlCheck the installed base when equipment changes.

  • Obsolete material still active

    Stock is replenished for an item that should be phased out.

    ControlBlock or phase out obsolete items before they reorder.

  • Duplicate materials splitting demand

    Each record looks slow-moving and neither is stocked correctly.

    ControlConsolidate duplicates before setting levels.

  • Criticality not considered

    A rarely used critical spare is set to zero.

    ControlReview criticality separately from consumption.

09Field note

10Practical checklist

  • Demand pattern classified: stable, intermittent, maintenance-driven or one-off.
  • History reviewed for shutdown peaks, one-off issues and duplicates.
  • Lead time confirmed against recent deliveries.
  • Safety stock assumption stated, not inherited.
  • Criticality and installed population checked.
  • Planned shutdown demand reserved separately.
  • The setting and its reason recorded.

11Try the decision logic

Decision Lab

Reorder point setting

The formula gives a number. Should that number go into the system?

Try the decision logic. There is no score: choose a decision and compare it with a professional review.

  1. 01Situation

    Illustrative scenario

    A spare has a reorder point in the system. The calculator computes the reorder point from demand, lead time and safety stock. Enter the current setting, describe the demand and the data behind it, and decide what to do with the setting.

  2. 02Signals

    Illustrative values, not a real item. Demand during lead time is average daily usage multiplied by lead time.

    ROP = 2 × 30 + 10 = 70 units

    Demand during lead time
    60 units
    Safety stock
    10 units
    Reorder point
    70 units

    Trigger replenishment when the stock position falls to 70 units.

    • Demand patternStable consumption · Intermittent: long gaps, sudden issues · Driven by planned work or shutdowns
    • Lead time usedConfirmed by recent deliveries · Supplier has announced a change · Not verified
    • Consumption historyRepresentative · Includes a one-off shutdown issue · Not reviewed
    • CriticalityNot critical · Critical, no standby
    • Installed equipment servedNo change since the history period · Units added or retired · Not checked
  3. 03Decision

    • Keep the current setting
    • Set the reorder point to the calculated value
    • Plan the known demand separately
    • Hold: review the assumptions first
    • Escalate for a criticality decision
  4. 04Professional review

    The interactive review needs JavaScript. Without it, the complete logic is in the rules below.

How the review is reached

The rules are checked from the top; the first one that matches the signals gives the professional position. Values in square brackets are filled in with the calculated numbers.

  1. IfA required number is empty

    Professional positionHold: review the assumptions first

    Any other decision: insufficient information

    One or more values are empty. The reorder point cannot be calculated, so the setting should not change yet.

  2. IfLead time used: Not verified

    Professional positionHold: review the assumptions first

    Any other decision: insufficient information

    The lead time has not been verified. Every day of error in lead time moves the trigger by a day of demand, so the calculated value cannot be trusted yet.

  3. IfLead time used: Supplier has announced a change

    Professional positionHold: review the assumptions first

    ConditionalSet the reorder point to the calculated value

    Any other decision: insufficient information

    The supplier has announced a lead-time change. Unless the new lead time is the one entered above, the calculation describes the old situation.

  4. IfConsumption history: Not reviewed

    Professional positionHold: review the assumptions first

    Any other decision: insufficient information

    The consumption history has not been reviewed. One-off issues or duplicate records can distort the average the calculation rests on.

  5. IfConsumption history: Includes a one-off shutdown issue

    Professional positionHold: review the assumptions first

    ConditionalPlan the known demand separately

    Any other decision: not supported by the signals

    The history includes a one-off shutdown issue. The average demand is inflated, and a reorder point built from it holds routine stock for a peak that will not repeat.

  6. IfInstalled equipment served: Not checked

    Professional positionHold: review the assumptions first

    Any other decision: insufficient information

    It has not been checked whether equipment the spare serves has been added or retired. Consumption history describes the installed base of the past; if that base has changed, the calculated value describes the old one too.

  7. IfInstalled equipment served: Units added or retired

    Professional positionHold: review the assumptions first

    ConditionalSet the reorder point to the calculated value

    Any other decision: not supported by the signals

    Equipment the spare serves has been added or retired since the history period. The average describes the old installed base, so a reorder point built from it is sized for equipment that no longer exists, or misses equipment that does.

  8. IfDemand pattern: Driven by planned work or shutdowns

    Professional positionPlan the known demand separately

    ConditionalHold: review the assumptions first

    Any other decision: not supported by the signals

    Demand follows planned work. The quantity for that work should be planned and reserved against it, not averaged into the reorder point.

  9. IfDemand pattern: Intermittent: long gaps, sudden issues · Criticality: Critical, no standby

    Professional positionEscalate for a criticality decision

    ConditionalHold: review the assumptions first, Keep the current setting

    Any other decision: escalation required

    A critical spare with intermittent demand: the average describes it badly and a stockout has a large consequence. The stock level is a criticality decision, supported by lead time and failure consequence, not by the formula.

  10. IfDemand pattern: Intermittent: long gaps, sudden issues

    Professional positionHold: review the assumptions first

    ConditionalKeep the current setting

    Any other decision: not supported by the signals

    Demand is intermittent: long periods of zero and occasional issues. The average rate under-describes the risk of a sudden demand, and the formula can set the trigger too low or too high.

  11. IfCurrent setting minus calculated < 0 · Criticality: Critical, no standby

    Professional positionSet the reorder point to the calculated value

    ConditionalEscalate for a criticality decision

    Any other decision: not supported by the signals

    The current setting is [Difference to the calculation] units below the calculated reorder point for a critical item. Replenishment would start too late to cover demand during the lead time.

  12. IfCurrent setting minus calculated < 0

    Professional positionSet the reorder point to the calculated value

    ConditionalHold: review the assumptions first

    Any other decision: not supported by the signals

    The current setting is [Difference to the calculation] units below the calculated reorder point. Replenishment would start too late to cover demand during the lead time.

  13. IfCurrent setting minus calculated > 0 · Criticality: Critical, no standby

    Professional positionHold: review the assumptions first

    ConditionalKeep the current setting, Escalate for a criticality decision

    Any other decision: not supported by the signals

    The current setting is [Difference to the calculation] units above the calculated reorder point for a critical item with no standby. A higher setting on a critical spare is often a deliberate decision about failure consequence; lowering it to the formula value without finding that decision removes protection the formula does not see.

  14. IfCurrent setting minus calculated > 0

    Professional positionSet the reorder point to the calculated value

    ConditionalKeep the current setting, Hold: review the assumptions first

    Any other decision: not supported by the signals

    The current setting is [Difference to the calculation] units above the calculated reorder point. The extra stock is justified only if it is a deliberate, recorded decision.

  15. IfAny other combination

    Professional positionKeep the current setting

    ConditionalSet the reorder point to the calculated value

    Any other decision: not supported by the signals

    The current setting matches the calculation and the assumptions hold. No change is needed.

Illustrative values, not a real item. Units are per day for demand and days for lead time.

12Connected intelligence

Experience

See this principle in practice

Decision Lab

Apply the decision logic

Knowledge

Related principles

13Evidence and basis

The reorder-point relationship is the standard one found in inventory-management literature; the worked example uses illustrative values, not a real item. Basis: Min-Max and replenishment settings in the CV roles Spare Parts Engineer and Spare Parts Superintendent, and training in spare-parts inventory and supply logistics.

Sources & References

  1. Inventory and Production Management in Supply Chains (4th edition)Edward A. Silver, David F. Pyke, Douglas J. Thomas · CRC Press · Book · 2017

The reorder-point and safety-stock definitions follow standard inventory-management literature. The classification of MRO demand patterns and the judgement on critical spares are the author's professional view, not a statement of that literature.

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