Reorder Level: Formula & Example

Every item in your store has a point below which you are gambling. The reorder level is that point. When stock falls to it, you raise the indent or order.

The formula

Reorder level = average daily usage × lead time (days) + safety stock

• Daily usage: how much you consume on a normal day.
• Lead time: days from raising the indent to material in the store, including approval, RFQ, PO and transport.
• Safety stock: a buffer for late deliveries and usage spikes.

Worked example

Bearing 6210 ZZ:

• Average usage: 8 nos per day
• Lead time: 10 days (2 days approval and PO, 8 days delivery)
• Safety stock: 40 nos

Reorder level = 8 × 10 + 40 = 120 nos.

When stock falls to 120, you order. By the time the new lot arrives in 10 days, you have used about 80 and still have the 40-unit buffer. (Illustrative figures.)

Why it matters

Without reorder levels, you find out an item is short when the storekeeper says "khatam ho gaya". A ₹200 bearing can then hold up a line producing lakhs of rupees a day, and the emergency order is placed at whatever rate the local dealer quotes.

Common mistakes

• Setting one reorder level years ago and never revising it as usage changes
• Forgetting approval time in lead time
• Setting reorder levels for every item, including ones used once a year
• Nobody checking stock against the level daily

Reorder level is usually set alongside a maximum level. Together they are called min-max inventory.

How IndustryPrime handles it

You set min and max levels for each item. When stock falls below the minimum, IndustryPrime raises a reorder alert so the indent goes out before you hit zero. IndustryPrime also suggests the order quantity, and open indent visibility shows what is already on order. See prevent stockouts.