Reorder Level Formula
The reorder level formula is used to calculate the minimum inventory level that a company should maintain in order to avoid stockouts. The formula is as follows:
Reorder Level = U * L + F * √U * R * L
Where:
- U = Usage in units per day
- L = Lead time in days
- R = Average number of units per order
- F = Stock out acceptance factor
For example, if a company uses 100 units of a material per day, has a lead time of 20 days, and orders an average of 2000 units per order, with a stock out acceptance factor of 1.3, then the reorder level would be:
Reorder Level = 100 * 20 + 1.3 * √100 * 2000 * 20 = 4600
This means that the company should maintain a minimum inventory of 4600 units of the material in order to avoid stockouts.
Here is a link to a blog post that provides more information about the reorder level formula: