Minimum & Maximum Level Of Inventory

MINIMUM LEVEL:

This level is supposed to be a dangerous level that means if you reached upto this level or this level is left in your hand a new order must be placed otherwise you may run out of inventory (stockout).

FORMULA:

Minimum Level = re-order level - ( average usage x average lead time)

Let say:

Maximum usage = 600 per week

Minimum usage = 400 per week

Time required to receive material ( in emergency cases) = 10 days

Time required to receive material ( atmost) = 20 days

Re-order level = 12000 units

 

Minimum level = 12000 - ( 500 x 15 )

Minimum level = 4500 units

 

MAXIMUM LEVEL:

 

This level also supposed to be a warning level for the concerned authirities that inventory level is exceeding the maximum storage limit, that leads to the extra expenses in terms of holding cost or wasteful material.

 

FORMULA:

 

Maximum level = reorder level + re-order quantity - ( minimum usage x minimum lead time)

 

Let say:

Maximum usage = 600 per week

Minimum usage = 400 per week

Time required to receive material ( in emergency cases) = 10 days

Time required to receive material ( atmost) = 20 days

Re-order level = 12000 units

Re-order quantity = 13000 units

 

Maximum level = 12000 + 13000 - ( 400 x 10 )

Maximum level = 21000 units.