What is a reorder point

Reorder point is a term used in inventory management to refer to the specific level of inventory at which a business needs to place an order for more of a particular item. This point is determined by considering factors such as the rate at which the item is sold, the lead time for restocking, and the safety stock (buffer inventory) the company wants to keep on hand.

When the inventory level of an item drops to the reorder point, it triggers an order for more of that item, which is then replenished to bring the inventory level back up to a certain level (usually the level of safety stock). The goal of reorder point is to prevent stockouts, or running out of an item, while also avoiding overstocking, which leads to unnecessary carrying costs.