Reorder Level

In stock control, the reorder point or reorder level is the level of inventory that triggers the generation of an order to replenish the stock. In practice, the reorder point is usually set based on the desired service level planned. The service level is the percentage of requests met first time from stock on hand. The higher the service level, the greater the number of requests which can be met first time from stock, and the higher the safety stock will be. In most stock control situations, demand cannot be easily forecast, as demand patterns vary. Assuming a normal distribution of monthly demand, it is possible to calculate the stockholding that would give a 95% service level, a 97.5% service level and so on. A 1% increase in service level does not imply a 1% increase in stock; stock levels need to increase geometrically. The reorder level is set higher to deliver a higher service level and implies an increased level of safety stock. See also Economic Order Quantity.