A predetermined level of inventory that signals when new stock should be ordered is called?

• A. Safety stock
• B. Reorder point
• C. Economic order quantity
• D. Lead time

Answer: (B)

The level that signals when to order is the reorder point. This is the inventory level you set so that, once stock falls to that point, you place a new order to replenish before you run out. It’s tied to the amount of demand you expect during the lead time—the period between ordering and receiving the goods. If you expect steady demand and short lead times, the reorder point can be simply the lead-time demand (demand × lead time). When demand or lead time are variable, you add safety stock to raise the reorder point so you don’t stock out. Safety stock serves as a buffer; it’s not the trigger itself. Economic order quantity deals with how much to order to minimize costs, not when to order, and lead time is the waiting period, not a stock level.