Re-order Level OR Ordering Point For Inventory

RE-ORDER LEVEL:

Re-order level is actually the level at which a new order is placed for inventory , It is based on the past experience of usage of that inventory in a given time period and the lead time. Lead time is actually the difference of the time of placing an order & the material available to use.

FORMULA:

Re-order level = Maximum usage x maximum lead time

Let say:

Maximum usage = 600 per week

Minimum usage = 400 per week

Time required to receive material ( in emergency cases) = 10 days

Time required to receive material ( atmost) = 20 days

Reordel level or ordering point = 600 x 20

Reorder level = 12000 units.

That means when u have reached this level , or the inventory left in yours hand = 12000 units , an order to purchase further inventory should be placed.