LEVEL SETTINGS

BY
PRIYANKA MAZUMDER
2K10MKT23
 Levels Of
Inventory

Reorder Minimu Maximum Danger Average

level m level level level stock level
 Reorder Level
 It is point at which the store keeper should initiate the
purchase requisition for fresh supply of materials.

The reorder point for replenishment of stock occurs when

the level of inventory drops down to zero. In view of
instantaneous replenishment of stock the level of inventory
jumps to the original level from zero level.

ROL=(maximum usage* maximum re–order period(ROP))

 Minimum Level

 It is also known as SAFETY STOCK LEVEL. It represents

minimum quantity of material which must be maintained in hand
at all times.
 Stock should not exceed this quantity as it leads to overstocking
which should be avoided because
1. It unnecessarily blocks working capital which could be
profitably utilized somewhere else.
2. There may be chance in  deterioration in quality because large
stock will require more time before they are consumed.

Minimum Stock Level=Re-order Level – (Normal

Consumption*Normal Re-order Period)
 Maximum Level

 It represents maximum quantity of an item which can be held

in stock in anytime.
 The maximum stock level is fixed by taking into account the
following factors:
1. Amount of capital available for maintaining stores.
2. Godown space available.
3. Possibility of loss in stores by deterioration, evaporation etc.
4. Cost of maintaining the stores.
 Maximum stock level = re-ordering level + Re-ordering
quantity – (Minimum consumption*minimum reorder period )
 Danger Level

The line at which normal issues are stopped and issues

are made only under specific instruction.

 Danger level=average usage * maximum ROP

 Average Stock Level

 It is calculated by average of minimum stock level and

maximum stock level.

 Average stock level : (max level + min level)/2

OR
min stock level+1.5 ROQ
 Numerical

Calculate minimum and maximum reorder level.

Minimum consumption = 100 units/day
Maximum consumption = 150 units/day
Normal consumption = 120 units/day
Reorder period = 10 to 15 days.
Re order quantity (ROQ) = 15 days.
normal reorder period = 12days.
 Solution

ROL = Maximum usage * Maximum period

=150 * 15
=2250

Minimum Reorder Level

= ROL – (normal usage*normal ROP)
= 2250 – (120*12)
= 810
Maximum Reorder Level
=ROL + ROQ – (minimum level * minimum ROP)
=2250+1500 – (100*10)
=2750
thank you