Every manufacturing company has inventory, even job shops that purchase material for each job. It's difficult to purchase just what is needed without any surplus material left over at the end of the job. Surplus material becomes inventory. It is now a common practice for customers to place blanket orders with small monthly releases. It's difficult for any company to escape having an inventory.
Any savings is pure profit.
The reorder level is usually determined by average usage of the material, the lead time it takes to get in, and some safety stock to cover unusual usage. For example, take an item with an average usage of 100 per week and a lead time of four weeks. The reorder level might be set at 500, which covers four weeks usage and includes 100 extras as safety stock. Any combination of requirements causing inventory to dip below the reorder level triggers a purchase order or work order. There are two major problems with this method.