Reorder level
Reorder level is the stock quantity at which a business must place a new purchase order so inventory does not run out before the order arrives. It is set from the usage rate during the supplier's lead time, often plus a safety-stock buffer.
See it move
A part is used at 60 units a day, and the supplier's lead time is 8 days, so expected usage before the next delivery arrives is 60 × 8 = 480 units. Adding a 100-unit safety stock buffer against late deliveries gives a reorder level of 580 units — the stock quantity that triggers a new purchase order.
The formula
Variables
- Reorder level (units)
- Average usage rate (units per period)
- Lead time (periods)
- Safety stock (units)
Sets the stock quantity that should trigger a new order, covering both expected usage during the lead time and a buffer against variability.
Check yourself
A part is used at 60 units a day. The supplier's lead time is 8 days, and the company keeps a safety stock of 100 units to cover late deliveries. At what stock level should a new order be placed?