A reorder level, also known as a reorder point, is the inventory level at which a business places an order with its suppliers to replenish the stock of a certain product. It is the minimum amount of an item that a firm holds in stock, such that when the stock falls to this amount, the item must be reordered. The reorder level is generally higher than the minimum level to cover any emergencies that may arise as a result of abnormal usage of materials or unexpected delay in obtaining fresh supplies.

The calculation of the reorder level involves the usage rate per day, lead time, and safety stock level expressed in terms of several days sales. The formula for calculating the reorder level is:

Reorder level = Average daily usage rate × lead time in days

For example, if the average daily usage rate of a material is 50 units and the lead time is seven days, then the reorder level would be 350 units. When the inventory level reaches the reorder level, an order should be placed for the material.

The purpose of the reorder level is to ensure that the risk of an item going out of stock is minimized. It also takes into account the expected amount of time it takes for items to reach the warehouse from the moment an order is placed with the supplier. By establishing reorder points, businesses can reduce their capital investments and ensure that their company is running as efficiently as possible in terms of both inbound and outbound logistics.