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The reorder point (ROP), also reorder level (ROL) or "optimal re-order level", [1] is the level of inventory which triggers an action to replenish that particular inventory. It is a minimum amount of an item which a firm holds in stock, such that, when stock falls to this amount, the item must be reordered.
The (Q,r) model addresses the question of when and how much to order, aiming to minimize total inventory costs, which typically include ordering costs, holding costs, and shortage costs. It specifies that an order of size Q should be placed when the inventory level reaches a reorder point r. The (Q,r) model is widely applied in various ...
In a base-stock system inventory position is given by on-hand inventory-backorders+orders and since inventory never goes negative, inventory position=r+1. Once an order is placed the base stock level is r+1 and if X≤r+1 there won't be a backorder. The probability that an order does not result in back-order is therefore:
If there are backorders, the reorder point is: =; with m being the largest integer and μ the lead time demand. Additionally, the economic order interval [ 8 ] can be determined from the EOQ and the economic production quantity model (which determines the optimal production quantity) can be determined in a similar fashion.
Without inventory optimization, companies commonly set inventory targets using rules of thumb or single stage calculations. Rules of thumb normally involve setting a number of days of supply as a coverage target. Single stage calculations look at a single item in a single location and calculate the amount of inventory required to meet demand. [11]
Prior to MRP, and before computers dominated industry, reorder point (ROP)/reorder-quantity (ROQ) type methods like EOQ (economic order quantity) had been used in manufacturing and inventory management. [1] MRP was computerized by the aero engine makers Rolls-Royce and General Electric in the early 1950s but not commercialized by them.
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