The basis of reorder point planning is the comparison of available stock with the reorder point. If the available stock is less than the reorder point, the difference represents a shortage and procurement is triggered.
How is the reorder point defined and how can you calculate it?
The reorder point must be calculated to cover the expected average demand for the material during the replenishment lead time.
You maintain the reorder point in the material master record at plant level.
You can also maintain a safety stock level in the material master record. Safety stock is intended to cover any excess demand for material during the replenishment lead time and can also be used in the event of a late delivery.
Therefore, the reorder point is defined as the expected material requirement during the replenishment lead time plus the safety stock.
The following figure illustrates the idea of reorder point: When the available stock reaches the reorder point, a procurement proposal is created. Stock continues to be withdrawn during the replenishment lead time. Normally, the safety stock should not have been taken when the ordered quantity is received. The new available quantity will last for some time until the stock reaches the reorder point again.
In summary, when defining the reorder point, consider the following:
- Safety stock
- Previous consumption or future requirements
- Replenishment lead time
Reorder point = safety stock + expected daily demand * replenishment lead time
Note
The reorder point can be defined and maintained manually in the material master record, or the system can calculate and update the reorder point automatically using the forecasting program.
If you want to define the reorder point manually, select MRP type VB in the material master record, and take into account the aspects mentioned above for calculating the reorder point.
If you want the system to calculate the reorder point, select MRP type VM for the material.