MINIMUM STOCK LEVEL - Quantitative Techniques for management

How to calculate Minimum stock level in excel ?

This is the level below which the stock of an item should not fall. This is known as safety or buffer stock. An enterprise must maintain minimum quantity of stock so that the production is not hampered due to non-availability of materials. This level is fixed after considering the following factors:

Minimum stock level formula in Excel

The formula for calculating minimum level is:

Minimum Stock Level = Re-ordered level – (Average rate of consumption × Lead time)

Factors Affecting Minimum Stock Level

These are as follows:

  1. Lead Time: the lead time is defined as the amount of time required to deliver an order after the order is placed. The lead time can be constant (including zero) or random)
  2. Inland or Importable Inventory: If the material is to be import then the lead time will be more implying minimum inventory level is to be kept high.
  3. Availability of Inventory: If the material is not easily available then the minimum stock level to be kept high.
  4. Possibility of Interruption in Production: If the production process is smooth then it is easy to determine the minimum stock level, but, if production is not smooth due to some reasons such as strike, power, etc. Then it is not easy to find out exact level of minimum stock.
  5. Nature of the Material: Materials that are regularly stored must maintain a minimum level. If on customer’s order a special item of material is to be purchased, no minimum level is required to be fixed for that.
  6. The Maximum Time required from the Date of Order to the Date of Actual Delivery: It is known as the Lead Time. The longer the lead time the lower is the minimum level, provided the reorder point remains constant.
  7. Rate of Consumption of the Material: The minimum rate, the maximum rate and the normal rate of consumption are to be taken into consideration.

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