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What is a Reorder point?
What is a Reorder point?

Use Reorder points to avoid running out of stock

Dayvid Lorbiecke avatar
Written by Dayvid Lorbiecke
Updated over a week ago

A Reorder point is the inventory level for a product or material that indicates the need to replenish that item's stock. The Reorder point is taken into account in calculating the Missing/Excess quantity for your items in the Stock screen (read more). If the Missing/Excess quantity is negative, you should create a new Manufacturing order (MO) or Purchase order (PO) for the item.

Reorder points are used to ensure you always have sufficient stock to protect the business against spikes in demand or shortages in supply.

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.

Using Reorder points is a similar concept to having 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 the Safety Stock level under normal circumstances.

However, while deciding when to make or purchase more items, lead times need to be taken into account. Reorder points account for lead times and are 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 and a good Safety Stock level means that your quantity never hits zero.

In Katana, Purchase orders and Manufacturing orders are not created automatically. You can see the difference from the optimal level for each item in the Stock screen by looking at the Missing/Excess column. Inventory levels below optimal are highlighted in red, indicating that you should create a new Purchase order or Manufacturing order.

Too high of a Reorder point can come at a cost. If you keep too much stock, there may be additional costs related to renting additional warehouse space, paying salaries to those handling the stock, risk of stock expiring or becoming outdated, and more. Excess inventory can also keep your cash tied up. Every manufacturer needs to find a good balance between having enough stock to weather the storm but not too much that it breaks the bank.

You can set a Reorder point for each product and material directly on the Stock screen.

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