Re-order Level And Its Calculation

Concept And Meaning Of Re-order Level

Re-order level is a level of material at which the storekeeper should initiate the purchase requisition for fresh supplies. When the stock-in-hand comes down to the re-ordering level, it is an indication that an action should be taken for replenishment or purchase.

The re-order level is calculated as follows:
Re-order Level= Minimum Level(Safety stock) + (Average lead time x Average consumption)

OR
Re-order Level= Maximum Consumption x Maximum Re-ordering Period

Illustration

Suppose,
Maximum consumption per day = 400 units
Minimum consumption per day = 200 units
Re-order period = 8 to 10 days
Then,
Re-order Level = Maximum consumption x Maximum re-order period
= 400 units x 10 days = 4000 units