Directorate of distance education

Reorder Point Models 
A reorder point system is a widely used way to identify purchase 
needs. Such system uses information regarding order quantity and 
demand forecast that are unique to each item or part number maintained 
in inventory. Each item in a reorder point system, which is usually 
computerized, has a predetermined order point and order quantity. When 
inventory is depleted to given level, the system notifies the material control 
department (or the buyer in some organizations) to issue a request to a 
supplier for inventory replenishment. This signal might be a blinking light 
on a screen, a message sent to the material control department’s e-mail 
address, or computer report. Most reorder point systems are automated 
using predetermined ordering parameters (such as an economic order 
quantity, which considers inventory holding and ordering costs). 
Computer-based systems can instantly calculate reorder point parameters. 
Most systems can also calculate the cost tradeoffs between inventory 
holding costs, ordering costs, and forecast demand requirements. Reorder 
point systems are used for production and nonproduction items.

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An automated reorder point system efficiently identifies purchase 
requirements. This type of system can routinely provide visibility to cur-
rent inventory levels and requirements of thousands of part numbers. The 
reorder point system is the most common method for transmitting rou-
tine material order requests today, particularly for companies that main-
tain spare part distribution centers. Students interested in learning more 
about reorder point systems should consult an inventory management 
textbook. 
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