The consumption rate of a material of a firm is 20 units per week and lead time of supply of the raw material is two weeks. Which of the following will be the reorder point?

Concept:

The reorder point is the inventory level at which a new order is placed. The order must be placed while there is enough stock in place to cover demand during lead time.

The inventory level might be depleted at a slower or faster rate during lead time. When demand is uncertain, safety stock is added as a hedge against stock-out.

Re-order level is a level of material at which the storekeeper should initiate the purchase requisition for fresh supplies.

The re-order level is calculated as follows:

Re-order Level = Minimum Level (Safety stock) + (Average lead time x Average consumption)

Re-order Level =Consumption rate x Lead time

Calculation:

Given, Consumption rate = 20 units per week and Lead time = two weeks

\(\therefore\) Re-order Level = \(20\times2=40\ units\)