The stock level that triggers a new order to prevent stockouts is known as?

• A. Reorder level
• B. Reorder quantity
• C. Maximum stock level
• D. Lead time

Answer: (A)

The idea here is about when to place an order to avoid running out of stock. The stock level that serves as that trigger is the reorder level. It marks the point at which you should reorder so you don’t experience a stockout during the supplier’s lead time. In practice, you set the reorder level to cover the expected use during lead time, plus some safety stock to guard against demand fluctuations or delays. When your inventory drops to that level, you place the order.

Reorder quantity, by contrast, is how much you order each time, not when to order. Maximum stock level is the cap to prevent overstock, not the trigger. Lead time is the period between ordering and receiving the goods, which influences how high your reorder level needs to be. For example, if you expect to use 500 units during lead time and want some safety stock, the reorder level would be set around 500 plus that safety stock, and you’d reorder when stock reaches that level.