Re-order level (ROL): Receiving and issuing of inventories are the common and recurring phenomena in a manufacturing organization. When the inventories fall below a particular level, they are replenished by the fresh purchases. The prescription of re-order level (ROL) is an important technique of inventory control. It fundamentally deals with ‘when to order’ to replenish the inventories. Re-order level is predetermined point, and when the existing stock of inventories reaches this point of falls below it, the purchase action is initiated to replenish them. The ROL is mentioned in the bin-card of each inventory item. What should be the quantity of replenishment order is also a matter of policy. Generally, size of the order is determined on the basis of the economic ordering quantity (EOQ) which is also an important technique of inventory control. Detailed treatment is given to this technique separately.
The re-order level is decided for each important item of inventory on the basis of following considerations:
1) Lead time
2) Average periodic consumption (daily consumption)
3) Safety stock
Re-order level is decided as under:
ROL= (Lead time x average daily consumption) + safety stock