The order point system uses fixed reorder levels and order quantities rather than time-based ordering. It sets maximum and minimum inventory levels for each item. When an item reaches the reorder point, a predetermined order quantity is placed to bring the inventory back up to the maximum level. The order point helps ensure there is enough inventory (the safety stock) by the time the ordered quantity arrives. This system works best when demand and lead times are stable, and the supplier can handle irregular orders. However, it requires continuous monitoring and records for each item.

1. Order Point System / Fixed Order System
Order point system / Fixed Order quantity system of inventory control is based on the (Re)
Order point and Order quantity factors rather than on the time factor. The inventory policy, in
this system, is drawn, defining the following:
 Fixed Order point / Re-Order Level (ROL) for each item
 Fixed Maximum , Minimum levels for each item
 Fixed Quantity to be ordered
Often called Min-Max systems, these involve both a maximum inventory level and a minimum at
which reorders are generated. Basically, units of an item are issued until the level of that
inventory reaches the predefined reorder point. An order is then triggered for a predetermined
quantity (usually a calculated economic order quantity). In this system, the order quantity is
constant and the time between orders s variable.
The different Inventorypoints (Levels) of stock for an item are:
Maximum level (Max.) , predetermined
Minimum Level (Safety stock, SS), predetermined
Lead time (LT) , predetermined
Monthly demand = D (often based on Moving average method)
MaxL.= (Review period + LT + SS) X D
Reorder level (ROL) = (LT + SS) X D
Order Quantity (OQ) = Max. – (Present stock + Pipeline dues)
Process : In course of consumption of an Inventory item , say, in the form of issue from Stores
to the users, the stock level of the item starts depleting through its usage rate D.
As per the above definition , the stock goes up to the maximum level in the first replenishment
and then, because of steady consumption, comes gradually down. In that process ,again as per
the definition , it touches the ROL.
As soon as the stock level touches the ROL fresh replenishment action is initiated.
It is presumed that the next lot shall arrive by the time the present depleting stock touches the
Safety stock , keeping a stable Lead time and a stable usage rate D.
In some places the Order quantity is decided by the above formula whereas in some other
places it is determined by the Economic Order Quantity (EOQ) concept. That's whenever an
order is to be placed the quantity shall be EOQ.

2. Advantages :
Each item is procured in the most economical quantity
An item is attended to only when it needs attention i.e. when its stock has reached the ROL
Control can be exercised on Inventory w.r.t. Max & Min levels
Applicability of Order Point system :
Item must have a reasonable stable usage
Lead time should not have radical variation
Supplier should be able to accept irregularly timed and unscheduled orders
Limitations of the system :
Needs continuous monitoring of stock level of each item
Cumbersome to operate for items with unstable usage and lead time
Perpetual inventory records are required

3. It is presumed that the next lot shall arrive by the time the present depleting stock
touches the Safety stock , keeping a stable Lead time and a stable usage rate D.
In some places the Order quantity is decided by the above formula whereas in some
other places it is determined by the Economic Order Quantity (EOQ) concept. That's
whenever an order is to be placed the quantity shall be EOQ.