What is Reorder Point?
The reorder point is the predetermined inventory level at which a new purchase order should be placed, calculated as average demand during the lead time plus a safety stock buffer to prevent stockouts during replenishment.
How It Works
- Formula: ROP = (average daily demand × lead time in days) + safety stock.
- Triggers a purchase order automatically when on-hand stock hits the threshold.
- Lead time includes supplier production, shipping, customs clearance, and receiving.
- Safety stock absorbs demand spikes and lead-time variability.
Saudi Context
Saudi importers face highly variable lead times due to sea freight from Asia (28-45 days) or air freight (5-10 days), plus 3-7 days for customs clearance at Saudi ports and SASO conformity verification. Effective reorder points for imported goods typically embed a 15-30 day safety stock buffer.
Example
A Saudi retailer sells 50 units per day on average, lead time is 14 days, safety stock is 200 units. ROP = (50 × 14) + 200 = 900 units. When stock drops to 900, a new order is placed.