The re-order level is the level of inventory at which the fresh order for that item must be placed to procure fresh supply. The re-order level depends upon:

a)    Length of the time between the placement of an order & receiving the supply, and
b)    The usage rate of the item. The inventory is constantly being used up. Raw material and work-in-progress inventories are being used in the production while the finished goods are being sold regularly. The rate at which the inventory is used up is called usage rate. The e-order can be determined as
             
                         R  =   M  +  tU

    Where        R = Re-order level
                      M = Minimum level of inventory
                      t   =  Time gap/ Delivery time
                      U = Usage rate

The re-order level & the inventory pattern have been shown in the fig.

The fig. shows that if the usage rate is constant , the orders are made at even interval for the same amounts each time, and the inventory goes to zero just before an order is received .


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