Which method to use for the ordering system

Order point and order rhythm procedures in direct comparison

Buyer's Guide

The order quantity and time of order can primarily be carried out in two basic ways in procurement: via the order point and the order rhythm procedure. Both ordering systems are consumption-oriented, but differ in their application. The choice of the respective order process therefore depends heavily on the individual conditions of the company and needs to be carefully considered!

Order point and order rhythm procedures: the direct comparison

What are the advantages and disadvantages of ordering point and ordering rhythm procedures? Which conditions speak for the use of the ordering rhythm procedure, which for the ordering point procedure? The following table provides information:
 

 

The order point procedure in detail

The order point procedure differs in essential features and peculiarities from the order rhythm procedure. There are also different variants of the application. The most important characteristics can be roughly represented as follows:

Quantity orientation:

The order point procedure is mainly quantity-controlled. In concrete terms, this means: An order is triggered as soon as a certain, previously defined stock level is reached - the so-called reorder level. The order dates are therefore variable and are not set in advance. The order point procedure requires a check of the current stock level after every stock exit.

Reorder level:

The reorder level is usually determined from a previously defined safety stock and the typical consumption quantities up to the delivery of new goods. In principle, the following applies: the faster the delivery, the lower the reorder level can be set. In the case of goods that should not be out of stock at any time, a generous iron reserve is also calculated in addition to the typical consumption quantities until delivery has taken place: the safety stock.

Security distance:

The safety stock serves to absorb uncertainties and supply gaps as far as possible. In the ideal case, delayed delivery times, discrepancies between book and stock levels as well as incorrect demand forecasts can be bridged by the safety stock.

Variations:

When the reorder level is reached, a response can be made by ordering a specified quantity (“order point lot size policy”). On the other hand, it can make sense to replenish the stock to a defined target stock after each stock removal ("order point stock level policy").
 

The ordering rhythm procedure in detail

In many respects, the rhythmic ordering procedure is similar to the ordering point procedure, but there are significant differences in some points.

Deadline orientation:

In contrast to the order point procedure, the order rhythm procedure is not primarily quantity-oriented, but date-oriented. This means that new goods are ordered regularly at specific time intervals. The respective specific order time is therefore independent of the current inventory.

Security distance:

A generous safety stock is indispensable within the framework of the order rhythm procedure in order to be able to meet unexpected increases in demand.
 

Variations:

Basically, the ordering rhythm method offers two options for ordering policies. Both the order intervals and the order quantity are fixed. This variant is useful when experience has shown that consumption is largely constant. One speaks here of the "order rhythm-lot-size procedure". While the order period is fixed, the order quantity is adjusted individually. This method is particularly recommended when a manufacturer delivers several articles in order to ensure the best possible coordination. The method is known under the name "Order rhythm-warehouse level method".

Conclusion: The individual company conditions are decisive

Order point and order rhythm procedures have their specific advantages and disadvantages. Which ordering system is used therefore largely depends on the demand and purchasing conditions of the goods sold. It does not always make sense to limit yourself to just one of the two ordering methods. In practice, both ordering processes are often used in combination.
 

WHITEPAPER
The future of operational purchasing

Find out in our free whitepaper how Industry 4.0 is turning a job upside down.

all articles
all articles