Minimum Stock Level Formula

Minimum Stock Level Formula

Minimum stock level formula may be calculated by the following formula. Minimum stock level formula has been explained with a simple example.

Minimum Stock Level = Reorder Level - (Average usage x average Lead Time)

Minimum Stock Level Formula Example

Re Oder level of Inventory= 70,000

Average usage per week= 10,000

Average lead time for inventory = 5 weeks

Solution

Minimum Stock Level = Reorder Level - (Average usage x average Lead Time)

= 70,000-(10,000 x 5)

=70,000-50,000

=20,000 (minimum stock level)

Significance of Minimum Stock Level

Minimum stock level is very critical level and at this level management should take appropriate actions or steps to ensure the availability of material. It is important to remember that this level is not an ordering level or re ordering level; rather this is a control or safety level.

Advantages of Minimum Stock Level Calculation

First advantage of minimum stock level is to provide management an effective control of the inventory management. Management can take appropriate steps to ensure timely availability. Minimum stock level calculation also helps in ensuring operations of the entity.

Minimum Stock Level and Inventory orders

Ideally inventory order should reach the warehouse before the inventory level touches the minimum stock level. If this is not the case, then operation of organization may be halted for shortage of inventory.

Other name of Minimum Stock Level

Other name of minimum stock level is safety stock level. It means that organization must maintain that level for safety or continuity of its operation. Minimum stock level ensures a safe environment for operations.

Minimum Stock Level Formula Question

Re Oder level of Inventory= 800,000

Average usage per week= 20,000

Average lead time for inventory = 8 weeks

Calculate the minimum stock level?

Other related Formulas

Average Stock Level Formula
Maximum Stock Level Formula
Minimum Stock Level formula 
Re Order Level Formula