Charlie Rogers, Manager, Bachelor of Management Studies (BMS), Lexington, Kentucky
Answered May 19, 2020
The reorder level refers to the stock level of a specific item that needs to be made in time to avoid being out of stock. It depends on the meantime that the supplier takes for replenishment, how the stock was used maximally when replenished, and the requirements for the safety of the stock. It is also referred to as the reorder point.
The reorder quantity is said to be the amount of order which is to be placed while making a new order of purchase for a specific item. The ordered quantity, which can also be referred to as the number of units, needs to be obtained by taking some essential factors such as cost of the order, carrying costs, cost of transportation, and etc. into account.
The reorder level formula goes thus: Reorder level = safety level + (average rate of daily usage × average days of lead time). The reorder quantity formula is: Reorder quantity = SQRT (2 × required quantity × cost per order) ÷ carrying costs per unit.