Reorder Quantity and Reorder Level

reorder quantity is the management decision is to how much stock is to be order to minimize the cost. This is important to remember that mainly two cost are considered in deciding the the reorder quantity and these cost are holding cost and ordering cost. This is matter of fact that purchase cost remains the same and have no relationship with quantity ordered. The most common method of calculating the reorder quantity is EOQ.


Reorder level is total a different concept than reorder quantity and tell basically about that at what stage the order would be place to avoid stock out or shortage of stock. The reorder level is important concept because the shortage of stock has many disadvantages for the entity these advantages include the idle time of the labour , loss of revenue , damage to the entity image and loss of revenue.


There are two important concept for determining the reorder level one is the usage and the second is the lead time. The usage is the expected quantity which would be required for a production process . The second factor is lead time which is the time require to reach the stock at the warehouse.

The management has to define the maximum usage and maximum lead time and also minimum usage and minimum lead time. There can be three reorder level calculated one is the that there will be maximum usage and maximum lead time. The second level is the minimum usage and minimum stock level and third is average usage and average lead time.