Inventory control levels can be calculated in order to maintain inventories at the optimum level. The three critical control levels are:
Minimum level is a warning level to draw management attention to the fact that inventories are approaching a dangerously low level and that stockouts are possible
The overall objective of inventory control is, therefore, to maintain inventory levels so that the total of the ______________ costs is minimised.
Practically the risks associated with a stock out are so great that the company always tries to avoid it even if it leads to extra holding cost
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The objective of good inventory management is to determine
The objective of good inventory management is to determine Read More »
Buffer/safety inventory – the basic level of inventory kept for emergencies. A buffer is required because both demand and lead time will fluctuate and predictions can only be based on best estimates
If the supply lead time is uncertain, and demand during the lead time is also uncertain, there should be a safety level of inventory. A company may wish to ensure that they are never out of stock. The reorder level to achieve this is found as:
