Minimum Stock Level Example

Minimum Stock Level Example

Minimum stock level concept has been explained with an example below;

Minimum Stock Level = Reorder Level - (Average usage x average Lead Time)

Example

Re Oder level established by the company = 35,000

Company Average material usage per week= 8,000

Company Average lead time for delivery = 4 weeks

Solution

Minimum Stock Level = Reorder Level (Average usage x average Lead Time)

= 35,000-(8,000 x 4)

=35,000-32,000

=4,000 (minimum stock level)

Technically saying minimum order level is level at which new supply should reach. This level is critical and management must take necessary step to ensure the supply.