Minimum Stock Level Formula

Minimum Stock Level Formula

Minimum stock level formula may be calculated by the following formula

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

Example

Re Oder level = 25,000

Average usage per week= 5,000

Average lead time = 3 weeks

Solution

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

= 25,000-(5,000 x 3)

=25,000-15,000

=10,000 (minimum stock level)

Company is required to maintain minimum level of stock to continue the operations. Any drop below the minimum level may result in shortage of supply and interruption in production.