OM L6 C11-13: Capacity Inventory Management

Re-order point (ROP)

The level of inventory at which a new order should be placed to replenish stock before it runs out, ensuring continuity in supply. Helps business avoid stockouts and optimize ordering cycles. The ROP takes into account lead time, demand rate, and safety stock levels.

Lead Time

The amount of time it takes from placing an order with a supplier until the inventory is received and ready for use. Include supplier processing time, shipping time, and any customs procedures

Demand Rate

Average rate at which you sell the item

ROP formula

( Average Daily Sales * Days of Average Lead Time) + Safety Stock

New Stock Formula

New stock level = (Opening stock level + Receipts in  -  Dispatches out)