Reorder Point System

A reorder point system is a widely used way to identify purchase needs. Such a system uses information regarding order quantity and demand forecasts unique to each item or part number maintained in inventory. Each item in a reorder point system, which is usually computerized, has a predetermined order point and order quantity. When inventory is depleted to a given level, the system notifies the materials control department (or the buyer, in some organizations) to issue a request to a supplier for inventory replenishment. This signal might be a blinking light on a screen, a message sent to the materials control department’s e-mail address, or a computer report. Most reorder point systems are automated, using predetermined ordering parameters (such as an economic order quantity, which considers inventory holding and ordering costs). Electronic systems (such as material requirements planning systems) can instantly calculate reorder point parameters. Most systems can also calculate the cost tradeoffs between inventory holding costs, ordering costs, and forecast demand requirements. Reorder point systems are used for production and nonproduction items.

An automated reorder point system efficiently identifies purchase requirements. This type of system can routinely provide visibility to current inventory levels and requirements of thousands of part numbers. The reorder point system is the most common method for transmitting routine material order requests today, particularly for companies that maintain spare part distribution centers.