minimum+level+of+safety+stock

http://accountlearning.blogspot.com.au/2010/05/minimum-level-or-safety-stock-and-its.html

Minimum level or safety stock level is the level of inventory , below which the stock of materials should not be fall. If the stock goes below minimum level, there is a possibility that the production may be interrupted due to shortage of materials. In other words, the minimum level represents the minimum quantity of the stock that should be held at all times. The minimum level is determined by using the following formula :  Minimum Level = Re-order level -(Normal consumption x Normal Re-order Point)

**Calculation OF Minimum Level Or Safety Stock **

Illustration Re-order Period = 8 to 12 days Daily consumption = 400 to 600 units Minimum Level = ?

Solution, Minimum Level = Re-order Level - (Normal Consumption x Normal Re-order Point) = 7200 - (500 x 10) = 2200 units.

Working Notes: 1. Re-order Level = Maximum consumption x Maximum Re-order Point =600 x 12= 7200 units 2. Normal consumption = (Maximum Consumption + Minimum Consumption)/2 =(600+400)/2= 1000/2= 500 units 3. Normal Re-order Period = (Maximum Re-order Period + Minimum Re-order Period)/2 =(12+8)/2= 10 days. Reorder point https://en.m.wikipedia.org/wiki/Reorder_point =Reorder point = [|Page issues]  The ** reorder point ** (** ROP **) is the level of [|inventory] which triggers an action to replenish that particular inventory stock. It is normally calculated as the forecast usage during the replenishment [|lead time] plus safety stock. In the [|EOQ (Economic Order Quantity) model], it was assumed that there is no time lag between ordering and procuring of materials. Therefore the reorder point for replenishing the stocks occurs at that level when the inventory level drops to zero and because instant delivery by suppliers, the stock level bounce back. Reorder point is a technique to determine // when // to order; it does not address how much to order when an order is made.
 * __Related Topics__**
 * Concept And Meaning Of Stock Level **
 * Re-order Level And Its Calculation **
 * Maximum Level And Its Calculation **
 * Average Stock Level And Its Calculation **
 * Danger Level And Its Calculation **
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== <span style="background-color: rgba(255,255,255,0);">Continuous Review System  <span style="background-color: rgba(255,255,255,0); text-decoration: none; vertical-align: baseline;">[|Edit]  ==

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">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. In real life situations one never encounters a zero [|lead time]. There is always a time lag from the date of placing an order for material and the date on which materials are received. As a result the reorder point is always higher than zero, and if the firm places the order when the inventory reaches the reorder point, the new goods will arrive before the firm runs out of goods to sell. The decision on how much stock to hold is generally referred to as the order point problem, that is, how low should the inventory be depleted before it is reordered. The two factors that determine the appropriate order point are the delivery time stock which is the Inventory needed during the lead time (i.e., the difference between the order date and the receipt of the inventory ordered) and the [|safety stock] which is the minimum level of inventory that is held as a protection against shortages due to fluctuations in demand. Therefore: > <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Reorder Point = Normal consumption during lead-time + Safety Stock. <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Several factors determine how much delivery time stock and safety stock should be held. In summary, the efficiency of a replenishment system affects how much delivery time is needed. Since the delivery time stock is the expected inventory usage between ordering and receiving inventory, efficient replenishment of inventory would reduce the need for delivery time stock. And the determination of level of safety stock involves a basic trade-off between the risk of [|stockout], resulting in possible customer dissatisfaction and lost sales, and the increased costs associated with carrying additional inventory. Another method of calculating reorder level involves the calculation of usage rate per day, lead time which is the amount of time between placing an order and receiving the goods and the safety stock level expressed in terms of several days' sales. > <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Reorder level = Average daily usage rate x lead-time in days. <span style="background-color: rgba(255,255,255,0); display: block; font-family: inherit; font-size: inherit; vertical-align: baseline;">From the above formula it can be easily deduced that an order for replenishment of materials be made when the level of inventory is just adequate to meet the needs of production during lead-time. ===<span style="background-color: #ffffff; color: #252525; font-family: 'Linux Libertine',Georgia,Times,serif; font-size: 1.2em; vertical-align: baseline;"> <span style="background-color: rgba(255,255,255,0); color: #000000; font-family: arial,helvetica,sans-serif;">Example[// [|dubious] //] <span style="background-color: rgba(255,255,255,0); color: #000000; font-family: arial,helvetica,sans-serif; text-decoration: none; vertical-align: baseline;">[|Edit]  ===

<span style="background-color: rgba(255,255,255,0);"> https://en.m.wikipedia.org/wiki/Economic_Order_Quantity
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Economic Order Quantity **

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