The formula to calculate the reorder point is:
\[ \text{RP} = \text{LT} \times \text{ADU} + \text{SS} \]
Where:
A reorder point is defined as the point or quantity of goods at which a company should reorder more products from their supplier or suppliers. The reorder point is based on the usage, lead time, and safety stock the business wants to hold. Safety stock is a measure of the number of units a company holds on hand above their required usage for cases of emergency.
Let's consider an example:
Using the formula to calculate the reorder point:
\[ \text{RP} = 10 \times 50 + 100 = 500 + 100 = 600 \text{ units} \]
This means that the reorder point for this scenario is 600 units.
