The reorder point for an item in inventory is the number which triggers a new supply order.
reorder point =
= ((daily usage for item) * (lead time in days)) + (safety factor)
where:
• Daily usage for an item is the average number of items used over a given period.
• The lead time is the total time it takes for a shipment to be received after it has been ordered. This consists of the internal lead time (time within the hospital to prepare, process and approve the order) and external lead time (time it takes for the vendor to deliver the item once the order is received).
• The safety factor is the number of items providing a margin of safety to cover inadvertent delays in ordering or delivery. If this is too high, then excess inventory is maintained. If this is too small, then a critical shortage may occur, requiring expensive emergency deliveries.
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