Which factors are typically used to compute the reorder point?

• A. Unit price, supplier rating, lead time
• B. Lead time, usage rate, and safety stock
• C. Demand forecast only
• D. Number of SKUs

Answer: (B)

When deciding when to reorder, you’re looking at how much you expect to use while you’re waiting for a new shipment plus a buffer for unexpected changes. The essential elements are lead time, usage rate, and safety stock. Lead time is the period from placing the order to its arrival, so you need enough inventory to cover that gap. Usage rate tells you how many units you sell on average each day, and multiplying that by the lead time gives the expected demand during the wait. Safety stock adds a cushion to handle variability in demand or supplier delays, reducing the chance of stockouts. Together, reorder point = lead time demand + safety stock. For example, with a 7-day lead time, a usage rate of 10 units per day (lead time demand = 70), and 15 units of safety stock, the reorder point is 85 units. Other factors like price, supplier rating, or the number of SKUs affect cost or assortment, but they don’t determine the reorder point calculation.