The Practical Calculation of Reorder Points

Patterns of demand for an item are usually found to be approximated very well by the Poisson distribution, provided that the sizes of individual sales are taken into account. A method is given that derives the effective sales size from historical data, thus permitting the determination of the proper Poisson parameter. Fitting this distribution to the data permits forecasting of usage and the determination of accurate reorder points. A chart employing the Poisson distribution is given for the simplified reorder-point determination.