Re order Level Formula

Re order Level Formula

Re order level is a level at which management is required to place new order. Re order level name itself suggest that it is a level at which order to be placed for production.

Re order Level = Maximum usage x Maximum Lead Time

Example

8000 unit of material C is to be consumed per week

Maximum Lead time for the stock arrival= 6 weeks

What would be Re order level?

Solution

Re order Level = Maximum usage x Maximum Lead Time

= 8000 x 6

=48,000 units

When stock reaches the level of 48,000 unit, then management must consider the placing of order to avoid any shortage.