📦 Fixation of Stock Levels of Materials
A Complete Guide with Examples and Practice Problems
📚 Introduction
Stock levels are predetermined quantities of materials that help in efficient inventory management. Proper fixation of stock levels ensures:
- Continuous supply of materials
- Prevention of overstocking and understocking
- Optimal capital utilization
- Smooth production operations
📊 Types of Stock Levels
1. Re-order Stock Level (ROL)
Formula:
ROL = Maximum Consumption × Maximum Re-order Period
OR
ROL = Minimum Level + (Average Consumption × Average Re-order Period)
📝 Example:
Given:
- Maximum Consumption: 300 units per day
- Maximum Re-order Period: 15 days
Solution:
ROL = 300 × 15 = 4,500 units
💡 When stock reaches 4,500 units, place a new order!
2. Maximum Stock Level
Formula:
Maximum Stock Level = Re-order Level + Re-order Quantity - (Minimum Consumption × Minimum Re-order Period)
📝 Example:
Given:
- Re-order Level: 4,500 units
- Re-order Quantity: 3,600 units
- Minimum Consumption: 200 units per day
- Minimum Re-order Period: 10 days
Solution:
Maximum Stock Level = 4,500 + 3,600 - (200 × 10)
= 4,500 + 3,600 - 2,000
= 6,100 units
💡 Never store more than 6,100 units!
3. Minimum Stock Level
Formula:
Minimum Stock Level = Re-order Level - (Average Consumption × Average Re-order Period)
OR
Minimum Stock Level = Re-order Level - (Normal Consumption × Normal Re-order Period)
📝 Example:
Given:
- Re-order Level: 4,500 units
- Average Consumption: 250 units per day
- Average Re-order Period: 12 days
Solution:
Minimum Stock Level = 4,500 - (250 × 12)
= 4,500 - 3,000
= 1,500 units
💡 Always maintain at least 1,500 units!
4. Average Stock Level
Formula:
Average Stock Level = (Minimum Stock Level + Maximum Stock Level) ÷ 2
OR
Average Stock Level = Minimum Stock Level + (Re-order Quantity ÷ 2)
📝 Example:
Given:
- Minimum Stock Level: 1,500 units
- Maximum Stock Level: 6,100 units
Solution:
Average Stock Level = (1,500 + 6,100) ÷ 2
= 7,600 ÷ 2
= 3,800 units
💡 On average, maintain 3,800 units!
5. Danger Stock Level
Formula:
Danger Stock Level = Average Consumption × Emergency Delivery Time
Note: This is usually below the minimum stock level
📝 Example:
Given:
- Average Consumption: 250 units per day
- Emergency Delivery Time: 4 days
Solution:
Danger Stock Level = 250 × 4
= 1,000 units
⚠️ If stock falls below 1,000 units, make emergency purchases!
📋 Quick Reference Table
| Stock Level Type | Formula | Purpose |
|---|---|---|
| Re-order Level | Max. Consumption × Max. Re-order Period | When to place a new order |
| Maximum Level | ROL + ROQ - (Min. Consumption × Min. Re-order Period) | Maximum inventory limit |
| Minimum Level | ROL - (Avg. Consumption × Avg. Re-order Period) | Safety stock requirement |
| Average Level | (Min. Level + Max. Level) ÷ 2 | Normal inventory holding |
| Danger Level | Avg. Consumption × Emergency Delivery Time | Critical stockout warning |
🔄 Stock Level Management Flowchart
🎯 Comprehensive Calculation Example
Complete Problem:
ABC Manufacturing Company has the following data:
- Maximum Consumption: 400 units per day
- Minimum Consumption: 200 units per day
- Average Consumption: 300 units per day
- Maximum Re-order Period: 20 days
- Minimum Re-order Period: 10 days
- Average Re-order Period: 15 days
- Re-order Quantity: 4,800 units
- Emergency Delivery Time: 5 days
Calculate all Stock Levels:
| Stock Level | Calculation | Result | Amount (₹10/unit) |
|---|---|---|---|
| Re-order Level | 400 × 20 | 8,000 units | ₹80,000 |
| Maximum Level | 8,000 + 4,800 - (200 × 10) | 10,800 units | ₹1,08,000 |
| Minimum Level | 8,000 - (300 × 15) | 3,500 units | ₹35,000 |
| Average Level | (3,500 + 10,800) ÷ 2 | 7,150 units | ₹71,500 |
| Danger Level | 300 × 5 | 1,500 units | ₹15,000 |
📝 Practice Questions
Click on "Show Solution" button to reveal the answer for each question.
Question 1
Calculate the Re-order Level from the following data:
- Maximum Consumption: 250 units per day
- Maximum Re-order Period: 12 days
Question 2
Find the Danger Stock Level:
- Average Consumption: 180 units per day
- Emergency Delivery Time: 6 days
- Cost per unit: ₹25
Question 3
Calculate Minimum Stock Level and Average Stock Level:
- Re-order Level: 6,000 units
- Normal Consumption: 200 units per day
- Normal Re-order Period: 15 days
- Maximum Stock Level: 9,000 units
- Unit Cost: ₹20
Question 4
Calculate Maximum Stock Level:
- Re-order Level: 7,200 units
- Re-order Quantity: 4,000 units
- Minimum Consumption: 150 units per day
- Minimum Re-order Period: 8 days
- Price per unit: ₹30
Also calculate the monetary value of Maximum Stock Level.
Question 5
XYZ Industries Ltd. provides the following information. Calculate ALL stock levels and prepare a summary table:
- Maximum Consumption: 500 units per day
- Minimum Consumption: 250 units per day
- Average Consumption: 375 units per day
- Maximum Re-order Period: 18 days
- Minimum Re-order Period: 12 days
- Average Re-order Period: 15 days
- Re-order Quantity: 6,000 units
- Emergency Delivery Time: 7 days
- Cost per unit: ₹50
Calculate: (i) Re-order Level, (ii) Maximum Level, (iii) Minimum Level, (iv) Average Level, (v) Danger Level
💡 Key Points to Remember
✓ Re-order Level
Place order when stock reaches this level to avoid shortage
✓ Maximum Level
Never exceed this to prevent overstocking and capital blockage
✓ Minimum Level
Safety buffer to handle unexpected demand or delivery delays
✓ Average Level
Used for inventory valuation and working capital calculations
✓ Danger Level
Critical alert - requires immediate emergency action