- 2 (minimumstock levelt
stock level)
a calculate the minimum stock level mai
mam ntech level, ce seduting level favog
stock level from the folloosha information
minimum concuption = 100 units per day
2 maximum consuption = 150 units per day
so Average 125
3 nromal consumption=120units per day
4 reordered period=10-15 days
5 reordered quantity=1500units
6 normal reordered period= 12 days
Answers
Answer:
Read this article to learn about the formulas and calculations for fixation of stock levels.
Formulas:
(i) Maximum Level of Stock = (Reorder Level + Reorder Quantity) – (Minimum rate of consumption x Minimum reorder period)
Maximum Level may be alternatively fixed as Safety Stock + Reorder Quantity or EOQ.
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(ii) Minimum level of stock = Reorder level – (Average rate of consumption x Average reorder period)
(iii) Safety Stock = (Annual Demand/365) x (Maximum Reorder Period – Average Reorder Period)
(iv) Reorder level or Ordering level = Maximum rate of consumption × Maximum reorder period. Alternatively, it will be = safety stock + lead time consumption
[lead time consumption will be = (Annual consumption -s- 360) × lead time]
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(v) Danger level = It is slightly below the minimum level. It is a level at which special efforts should be made to obtain supplies of materials, i.e.
Minimum rate of consumption × Emergency delivery time
(vi) Average Stock level = (Maximum stock level + Minimum stock level) x 14 or Minimum Stock level + 14 Reorder Quantity.
Obviously, the Reordering level is below the Maximum level, and Minimum level is below the Reordering level and the Danger level is below the Minimum level. Safety Stock is above minimum level.
Important Elements:
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In above calculations, the following elements are important:
(a) Consumption Rate:
It is consumption or use of material per day (or per week) by production department. These rates will be maximum and minimum, the simple average of maximum and minimum rates is average consumption rate per day or per Week.
(b) Reorder Period:
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It is period between materials ordered and materials received. The average reorder period is simple average of maximum and minimum reorder periods.
(c) Reorder Quantity:
At the time of purchase of material, one of the important problems to be faced is how much quantity of a particular materials to be purchased at a time. If purchases are made frequently in small quantities it will result in loss of trade discounts and economies in purchasing. On the other hand if purchases are made in large quantities it will lead to over stocking and cost of storage will be high. The ordering quantity should be economic and reasonable by all aspects. It should be Economic Order Quantity (EOQ). The calculation of EOQ has been discussed later on.
Illustration 1: [Fixation of stock levels]:
Two components A and B are used as follows:
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Normal usage 50 units per week each
Minimum usage 25 units per week each
Maximum usage 75 units per week each
Reorder Quantity A 300 units; B 500 units
Reorder Period A 4 to 6 weeks, B 2 to 4 weeks
Calculate for each components:
(a) Reorder level,
(b) Minimum Level,
(c) Maximum level,
(d) Average Stock Level.
Solution:
(a) Reorder Level = Maximum Rate of Consumption x Maximum Reorder Period.
A = 75 x 6 = 450 units
B = 75 x 4 = 300 units
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(b) Minimum Level = Reorder Level – (Average Rate of consumption x Average Reorder Period)
A = 450 – (50 – 5) = 200 units
B = 300 – (50 x 3) = 150 units
(c) Maximum Stock Level
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= (Reorder Level + Reorder Quantity) – (Minimum Consumption Rate x Minimum Reorder Period)
A = (450 + 300) – (25 x 4) = 650 units
B = (300 + 500) – (25 x 2) = 750 units
(d) Average Stock Level = (Maximum Stock Level + Minimum Stock Level)/2
A = (650 + 200)/2 = 425 units
B = (750 + 150)/2 = 450 units
Average Stock Level can also be calculated by the formula.
Minimum Stock Level + ½ of Reorder Quantity
A = 200 + ½ x 300 = 350 units
B = 150 + ½ x 500 = 400 units