Stock Levels

Maximum Stock Level
That level above which the stock should not be allowed to exceed. It is the highest level of a particular material which is there in the store at a particular period of time.

Overstocking means increased cost of storage, cost of investment in stock, increase in cost of insurance and also the risk of obsolescence
This level is fixed after keeping in mind the following
Re Order Level
Reorder Quantity
Minimum rate of Consumption
Minimum reorder period
Availability of Working Capital
Availability of storage space
Extra Cost of Storage
Extra cost of Insurance
Risk of Obsolescence
Supply of Importance Material
Price Fluctuations

Maximum Level = Re Order level+ RE order Quantity - (Minimum Rate of Consumption X Minimum Re order Period)

Minimum  Stock level
That level of  stock below which the stock level should not be allowed to fall. It is the lowest level of a particular material. The objective is to avoid the cost of understocking or extra cost due to stoppage of assembly line, idle labour cost.cost of idle plant and machinery
This level is fixed after taking into consideration the following:
Re order level
Normal rate of Consumption
Normal Reorder Period

Minimum stock level=Re order level-( Normal Rate of Consumption X Normal Reorder Period)



Re Order Level
That level of stock at which fresh level should be placed for replenishment. It is fixed somewhere between maximum and minimum level such that fresh supplies are received before the levels reach
minimum level. Reorder levels re determined so that it can be determined when the order needs to be placed for replenishing the depleted stock levels

The following factors are kept in mind:
Minimum Rate of Consumption
Maximum Reorder Period
Minimum level

RE Order level=Maximum Rate of Consumption X Maximum Re order Period

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