ERP systems and generating reorder points

The reorder point in manufacturing is a mechanism used to manage inventory in production. It refers to the point at which raw materials or supplies must be ordered to keep inventory at an appropriate level, without shortages or excess stock.

Calculating the reorder point in manufacturing takes into account several factors specific to that particular production process, such as the production lead time and the demand for raw materials in the production process, which helps a business manage its inventory efficiently and cost-effectively.

An ERP system is an enterprise resource management system used to manage and administer all of a business’s data, integrating many functions such as accounting, warehouse management, production, sales, and marketing.

Generating a reorder point in an ERP system is done by using historical sales data and inventory values to calculate the quantity of goods that must be ordered.

The commonly used formula for calculating the reorder point is:

Reorder Point = Lead Time Demand + Safety Stock

Where Lead Time Demand is the quantity of goods covering the product’s shelf life or the production and delivery time, and Safety Stock is the additional reserve stock set aside for confidence in cases of uncertainty.

ERP Systems and Generating Reorder Points