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What do you mean by Reorder Point? How it is calculated? |
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Answer» It is a level at which a new order must be placed so that the inventory is renewed before the stock reaches zero level. It is estimated by using the formula Reorder Point = Usage Rate x Lead Time Example: Suppose a company uses 15 units of an item per day (usage rate, and the order lead time is 10 days, a new order must be placed when the inventory level reaches 150 units (Reorder Point 150 = Usage Rate 15 x Lead Time 10) so that inventory is replenished before a stock out occurs. |
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