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What is the reorder point?

The reorder point is the quantity of units in inventory that will trigger an order to purchase additional units. Let's assume that a company's reorder point for its Product X is 80 units. When the inventory of Product X drops to 80 units, the company places an order for additional units of Product X.

The reorder point is calculated by 1) estimating the sales in the near future, 2) estimating the number of days between ordering and receiving the additional units, and 3) the number of units of safety stock.

The reorder point indicates when to place an order. The economic order quantity indicates the optimum number of units to be ordered.