Order up to level is when stock levels are periodically reviewed, and an amount of the item is ordered to return stock levels to the target level.
If the inventory level is at or below the reorder point, then the order-up-to-level is initiated. In inventory control, periodic stock taking and review will help in maintaining the order up to level.
The Order up to level formula
The most simple way of calculating it is,
Order-up-to-level quantity = Target level – reorder point.
There are two variations we can find in computing reorder points.
- Reorder Point = Safety Stock + Basic Stock + (Lead Time in days* Unit Sales Per Day ) // If the company maintains safety stock and basic stocks
- Reorder Point = Lead Time in days* Unit Sales Per Day ) // If the company doesn’t maintain safety stock and basic stocks
Hence our computation could be,
- Order up to level quantity = Target level – (Safety Stock + Basic Stock +(Lead Time in days* Unit Sales Per Day )).
- Order up to level quantity = Target level – (Lead Time in days* Unit Sales Per Day ).
Supply chain management systems available in the market today are with sophisticated inventory management modules.
Most of the ERP solutions available have an SCM module that can manage inventory control. The Thing that needs to be taken care of is the periodic review system is in place.
Order up to level vs Reorder point
Both order up to level and reorder point is inventory control policies. Minor differences between them are given below.
- In the order up to level review of the stock is periodic, in reorder point review of the stock is a continuous process.
- In order-up-to-level, the time interval between orders is fixed, whereas in the reorder point, as soon as the stock drops to the reorder point, a new order will be placed without considering the intervals between orders.
- In reorder point policy, order quantity is fixed. But in the order up-to level policy, order quantity varies according to the requirements.
Difference between reorder quantity and order up to level.
- Order up-to level indicates the level at which a new order to be placed to reach the stock level to the target level. Re-order quantity indicates the number of items is to be ordered to fulfill the target level.
- Order up-to level determines when the order has to place and reorder quantity determines how much quantity has to be ordered.
- Order up-to level will be affected by the lead-time taken by the vendor to deliver goods. Reorder quantity will be affected by the shipping cost and discounts.
- Usually, order up-to level is constant with minimum changes, whereas reorder quantity may vary for each order.