In some situations it may be necessary to include additional ‘safety’ stock on top of the ROP. Typically this would be either a surge in demand (therefore usage rate) or an extended lead time from the supplier.
So for example if we take the previous example and say we also needed to hold 500 ‘safety stock’ then we would need to have the ROP set at 2500 (500 safety stock (which should never be reached) and also the 2000 as ROP).
The ROP can be adjusted on a ‘floating’ basis based on demand (for example, weekly, monthly etc.)
So in summary, the Re-order Point method:
- Assumes demand is known and linear;
- Relies on instantaneous replenishment when inventory reaches zero;
- Assumes lead time is known and constant;
- Has no relationship to future usage;
- Treats each item independently; and
- Encourages safety stock.
