Setting a Reorder Point - ROP
Once the order quantity has been determined, the next question to be settled is when to place the order. If an order is released and it takes three weeks before the order is received, there must be sufficient stock held to ensure that there are no stock outs. This level of stock is referred to as the order point. When the stock level falls to the ROP release an order for quantity Q. This is illustrated in this figure.
L = lead time = the time between releasing and receiving the order.
In the example of the desk lamps, if the lead time were three weeks and the average demand were 1000/52 = 19.2 per week = 57 (set the ROP at 60 units).
There are a number of managerial points to note:
So, if the EOQ = 267.82, order 300.