Some extra time is added to "lead time" in the reorder formula. This…

Assuming that the future demand is known, one needs to determine when to place an order (Reorder Point) and how much to order (Order Quantity). Reorder point takes due note of the lead time and demand during lead time. Under utopian situation, the new quantity will arrive, just as the stock reaches zero. Real life is not that simple or straightforward. There is variability in the rate of demand (or consumption) as well as in the supply or manufacturing lead time etc. Therefore, it may reach a zero stock status, before the supply arrives. To cater to such variability, the concept of safety stock is used.