Maximum Stock Level Example

Maximum Stock Level Example

Maximum Stock Level concept has been explained with following simple example.

Maximum level = Reorder level + reorder Quantity- (Minimum usage x Minimum lead time)

Example

Reorder level for the company = 30,000 units

Reorder Quantity of product A = 15,000

Minimum usage of Product A= 5000

Minimum lead time = 3 weeks

Solution

Maximum level = Reorder level + reorder Quantity- (minimum usage x minimum lead time)

=30,000 + 15,000- (5000 x 3)

=45,000+15000

=60,000 units

60,000 units are maximum level for the company. Any stock beyond this level would not only unnecessary tied up the capital, but also would result in high holding cost for the company.