How to set the right reorder points for your key materials

Running out of raw material mid-production is one of the most avoidable operational disruptions in manufacturing. It almost always happens not because of unforeseeable supply problems, but because no one has defined when to reorder — so they reorder based on memory and gut feel, and eventually get it wrong.

A reorder point (ROP) is the inventory level at which you place a new order. It's calculated as: (average daily usage × supplier lead time in days) + safety stock. This ensures you don't run out during the time it takes for the new order to arrive.

Example: you use 50kg of a material per day. Your supplier delivers in 7 days. Your safety stock is 3 days' worth (150kg). Your ROP is (50 × 7) + 150 = 500kg. When your stock hits 500kg, you place the order. It arrives in 7 days, by which time you've used 350kg and have 150kg remaining as safety stock.

Safety stock is not optional. It's the buffer for variability in both demand and supply. If your demand or your supplier's delivery is perfectly consistent, safety stock can be low. If either is variable, safety stock needs to cover the worst-case scenario, not the average.

Order quantity is a separate decision from reorder point. The Economic Order Quantity (EOQ) formula minimises the combined cost of ordering (admin, freight) and carrying (storage, working capital). But for most SMEs, a simpler approach — order enough for 2–4 weeks of usage, adjusted for supplier MOQ (minimum order quantity) — is practical and close to optimal.

Review your ROPs quarterly. Usage rates change, supplier lead times change, and your safety stock requirement changes. An ROP that was correct 6 months ago may be wrong today.