ORDERING LEVEL OR RE-ORDER LEVEL - Quantitative Techniques for management

This level is that level of material at which it is necessary to initiate purchase requisition for fresh supplies. This is normally the point lying between the maximum and the minimum levels. Fresh orders must be placed before the actual stocks touch the minimum level. This level is fixed in such a manner that the quantity of materials represented by the difference between the re-order level and the minimum level will be sufficient to meet the requirement of production till such time as the order materializes and materials are delivered. The following factors are taken into account for fixing the Re-order level:

  1. Rate of consumption of material
  2. Lead time, i.e., time required to receive the delivery of fresh purchase.
  3. Re-order quantity
  4. Minimum level

Re Ordering Level Formula

Re-order level can be calculated by applying the following formula:

Re-order level = Minimum level + consumption during period required to get fresh delivery

Another formula for Re-order level is:

Re-order level = Maximum consumption x Maximum Re-order Period

Assumptions of Re-order point

  1. The time of delivery remains fixed.
  2. Load time remains fixed.
  3. The average rate of consumption of materials does not change.

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