Chapter 6 Purchasing

6.1 Supplier Risk

6.2 Time to Recovery

6.3 Time to Survive

6.4 Commodity Price Sensitivity

6.5 Reorder Point

The Reorder Point (ROP) computes the reorder point level of inventory. When inventory falls to this amount, a new order must be made.


ROP(SL, md, sd, L = 1)


  • SL is Service level, a value between 0 and 1
  • md is Mean demand
  • sd is Standard deviation of the demand
  • L is a positive lead-time

Acme wishes to provide a service level of 90% for it’s Bird Seed. The mean demand is 2500 with a standard deviation of 500 and a lead time of 6.


We see that when inventory falls to 16,570 a new order must be made.

6.6 Review