Overhead water tank controller is the best example to explain recorder level concept. If forget to fill the water tank, then one has to come out of bathroom with soap pubbles and switch on water pump. If forget to switch off the pump, then the neighbor will come wet and remind hardly. Both situations are bad and lead to problems. So there should be a controller that switches on when tank reached low capacity and switches off when maximum level is attained. This avoids wastage of water, power and loss of productivity.
Same kind of treatment must be given to inventory also. If the necessary stock is not the in the ware house, then production will get disturbed until stock reaches the factory. If stock is over dumped, then capital will be blocked unnecessarily and safeguarding stocks will also be expensive. So for every stock item, a recorder level must be fixed. When an item reaches that level an order must be placed for an economic order quantity.
Calculating Reorder Level and Reorder Quantity:
After knowing conceptually it is important to know to quantify the reorder level and reorder quantity. It needs formulas and understanding its applications.
Calculating Reorder level:
Reorder level can be calculated from the following formula:
Reorder level = Maximum consumption X Maximum Lead Time
Maximum consumption will normally be considered for a day. For example, a sweet shop owner will consider consumption of Sugar per day. However it may be for a period for more than a Day in some special cases.
Maximum lead time is the period required to get a stock item from its manufacturer to the Warehouse. For example, a tyre manufacturer will take minimum 3 days and maximum 7 days to serve an order, then 7 days is the lead time.
Calculating Reorder Quantity:
Economic order or reorder quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs.
Enabling Reorder Level:
Reorder level need not to be enabled separately. When activating Purchase order, ‘Reorder Levels’ option will get added with Inventory Info menu.
Specifying Reorder Levels:
Formulas will help to derive quantities. It needs to monitor the quantity with actual and display the status, then these quantities have to be sent in the system. Let us discuss to specify such levels in the system.
Specifying simple reorder levels:
To specify reorder level, use this path: Inventory info -> Reorder levels. When set ‘No’ to advance details fields, reorder levels alone can set with. Specify reorder level in the ‘Reorder quantity’ field and Reorder quantity in the ‘Minimum Order Quantity’ field.
In case of changes in these levels in the future, new levels can be reset by altering the existing levels.
Specifying advanced reorder levels:
Instead of fixing the levels manually, it can be entrusted with the system itself. Set ‘Yes’ to advanced fields to do so. This will add advanced parameters for reorder level and quantity.
Display of Reorder Status:
Reorder status can get displayed through Display -> Statements of inventory -> Reorder status.
Reorder status report calculates nett available stock, compares it with reorder level, finds any shortage and recommended for order to be placed.
Here, nett available = closing stock + purchase orders pending – sales order pending,
Shortfall = reorder level – shortfall, and order to be placed = minimum order quantity
By pressing enter key on reorder level / minimum reorder quantity field, reorder level can be altered.
Chapter – 13 Reorder Level & Status:
Exercise:
Consider Exercise no.1 from Chapter 18 and update the books with following details:
On 15.5.XX Cash Sales Details for a week to be entered as:
Argumentative Indian-13 Nos @ Rs.350 each – Rs.4550
Discovery of India-3 Nos @ Rs.599 each – Rs.1797
Harry Potter – 13 Nos @ Rs.650 each – Rs.8450
Total – Rs.14797
Reorder Level Details were calculated as below:
| Title | Reorder Level | Advanced Parameters | Reorder Qty. |
| Argumentative Indian | 15 No | 1 Month Cons-Higher | 10 No |
| Discovery of India | 15 No | 1 Month Cons-Lower | 5 No |
| Harry Potter | 20 No | 1 Week – Higher | 15 No |
| Ignited Minds | 30 No | 1 Month Cons-Higher | 20 No |
Please show the reorder status report as on 15.5.XX and advice the company regarding orders to be passed.