What is meant by "Reorder Point" (ROP) in inventory terms?

The term "Reorder Point" (ROP) refers to the specific inventory level at which a new order should be placed to replenish stock before it runs out. This is a crucial concept in inventory management, as it helps to prevent stockouts—situations where an item is no longer available for sale or use. When inventory levels drop to this established threshold, it triggers the decision to reorder, ensuring that there is enough stock to meet demand.

This method takes into account factors such as lead time (the time it takes for a new order to arrive) and average daily usage, allowing businesses to maintain continuity in their operations and services. By accurately determining the reorder point, organizations can manage their inventory more effectively, balancing the risk of excess inventory with the need to meet customer demand.