Re-order Level or Ordering Point or Ordering Level:
-
Definition and explanation of re-order point
-
Formula of re-order 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
re-order 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 re-order 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 re-order levelCalculation:
Ordering point = Ordering point or re-order 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 |
Re-order 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 re-order level = Maximum daily or
weekly or monthly usage × Maximum re-order period |
|
A:
60 × 5 = 300 units |
|
B: 60
× 4 = 240 units |
|
