An Economic Order Quantity (EOQ) could assist in deciding what would be the best optimal order quantity at the company’s lowest price. Similar to EOQ, the Re-Order Point (ROP) will advise when to place an order for specific products based on their historical demand.
The ROP also allows sufficient stock at hand to satisfy demand while the next order arrives due to the lead time.
The ROP quantity reflects the level of inventory that triggers the placement of an order for additional units. Whereas, the quantity associated with safety stock protects the company from stock outs or backorders. Safety stock is also known as a “buffer”.
The graph in Figure 9 illustrates how the ROP is connected with the lead time and the order quantity as a function of time.
Figure 9: Re-Order Point (ROP) example