1. The following animation is an example of poor re-order point usage.
This example is very similar to the one describing a good example of re-order point management. By running through both examples, you will learn the (slight) difference between them.
The delivery time of the raw materials is 7 days.
The re-order point is set to 500 and the order size is set to 500 units.
Press enter and the slide show begins…
Virtual Teams in International Business

2. Inventory size gets below the re-order point
1.000
Inventory size gets below the re-order point
900
800
500 units ordered
700
600
Re-order point 500
500
400
300
Order size 500
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

3. One day passes, some more materials consumed
1.000
900
The delivery moves forward
800
Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

4. One day passes, some more materials consumed
1.000
900
The delivery moves forward
800
Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

5. One more day passes, some more materials consumed
1.000
900
The delivery moves forward
800
Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

6. One more day passes, some more materials consumed
1.000
900
The delivery moves forward
800
Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

7. One more day passes, some more materials consumed
1.000
900
The delivery moves forward
800
Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

8. One more day passes, some more materials consumed
1.000
900
The delivery moves forward
800
Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

9. One more day passes, last materials consumed, inventory is empty
1.000
900
The delivery arrives
800
Inventory exceed re-order point so NO new raw materials are ordered
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

10. 500 units ordered and the loop begins again…
Another day passes, materials consumed, inventory get below re-order point again
1.000
900
800
500 units ordered and the loop begins again…
700
600
500
400
300
200
100
Inventory
1 day to
delivery
2 days to
delivery
3 days to
delivery
4 days to
delivery
5 days to
delivery
6 days to
delivery
7 days to
delivery

11. The example given seems to be ok on the surface level
The example given seems to be ok on the surface level. Compared to a more optimal example, however, this example has a much higher average inventory level (250 versus 50 in the good example), leading to lower inventory turnover (= higher capital usage) and higher waste.
Virtual Teams in International Business