Reorder Level or Ordering Point or Ordering
Level:

Definition and explanation of reorder point

Formula of reorder level or ordering point

Examples
This is that level
of materials at which a new order for supply of
materials is to be placed. In other words, at this
level a purchase requisition is made out. This level
is fixed somewhere between maximum and minimum
levels. Order points are based on usage during time
necessary to requisition order, and receive
materials, plus an allowance for protection against
stock out.
The order point
is reached when inventory on hand and quantities due
in are equal to the lead time usage quantity plus
the safety stock quantity.
The following two
formulas are used for the calculation of reorder
level or point.
Ordering point or
reorder level = Maximum daily or weekly or monthly
usage × Lead time
The above formula
is used when usage and lead time are known with
certainty; therefore, no safety stock is provided.
When safety stock is provided then the following
formula will be applicable:
Ordering point or
reorder level = Maximum daily or weekly or monthly
usage × Lead time + Safety stock
Example 1:
Minimum daily
requirement 
800 units 
Time required
to receive emergency supplies 
4 days 
Average daily
requirement 
700 units 
Minimum daily
requirement 
600 units 
Time required
for refresh supplies 
One month (30
days) 
Calculate ordering point or reorder level
Calculation:
Ordering point
= Ordering point or reorder level = Maximum
daily or weekly or monthly usage × Lead
time
= 800 × 30
= 24,000 units 
Example 2:
Tow types of
materials are used as follows:
Minimum
usage 
20 units per
week each 
Maximum usage

40 units per
week each 
Normal usage 
60 units per
week each 
Reorder
period or Lead time
Material A:
Material B 
3 to 5 weeks
2 to 4 weeks 
Calculate reorder point for two types of
materials.
Calculation:
Ordering point
or reorder level = Maximum daily or weekly
or monthly usage × Maximum reorder period 
A: 60 × 5 =
300 units 
B: 60 × 4 =
240 units 
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