Reorder Level or Ordering Point or Ordering Level
Reorder Level or Ordering Point or Ordering Level:
Definition and explanation:
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.
Formula of Reorder Level or Ordering Point:
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
Examples:
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 re order 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 