What is Reorder Point?
Reorder Point is the level of inventory for a product or a material that indicates a need to replenish that particular item's stock. Reorder Point is taken into account in calculating the "Missing/Excess" quantity for your items in the "Inventory" list (read more). When the "Missing/Excess" quantity is negative, you should create a new Manufacturing Order for a product or a Purchase Order for a material.
Reorder Point is used to ensure that you always have sufficient stock to protect the business against spikes in demand or shortages in supply, which could be caused by supplier failures, missing the manufacturing targets, seasonality, or unexpected large orders, for example.
Tip: In a Make to Order business model, the Reorder Point for products is typically zero. In a Make to Stock situation, we suggest using Reorder Points to manage optimal stock levels. In both cases, you could use Reorder Points for materials. Read more about Make to Order and Make to Stock.
Reorder Point is a similar concept to Safety Stock. Safety Stock is the optimal level of inventory you wish to keep to ensure sufficient delivery times to your customers. Your inventory for a product or material should not drop below Safety Stock level under normal circumstances. However, while deciding when to order additional raw materials or create Manufacturing Orders for products, you need to take lead times into account. Reorder Point accounts for lead times and, thus, is typically a little higher than the Safety Stock level. To sum up, a good Reorder Point ensures that your stock never dips below your Safety Stock level, but a good Safety Stock level means that your quantity never hits zero.
Read more about determining the appropriate level of Reorder Point
In Katana, Purchase Orders or Manufacturing Orders are not created automatically. You can see the difference from the optimal level for each item in the "Inventory" list (read more) by looking at the "Missing/Excess" column. Inventory levels that are below optimal are highlighted in red. This indicates that you should create new Purchase Orders or Manufacturing Orders.
However, be aware that too high Reorder Point comes at a cost. If you are keeping too much stock, the cost might be related to renting additional warehouse space, paying salary to people handling the stock, the risk of stock expiring or becoming outdated, and much more. Also, excess inventory means your cash is tied up. Therefore, every manufacturer needs to find a good balance between having enough stock to weather the storms, but not so much that it would break your bank.
You can set Reorder Point for each product and material on its item card. Read more about How to set Reorder Point for a product or material?