A business which holds stock will implement the following stock levels in order to meet customer demand at all times.
Minimum Level: this is the minimum amount of stock needed in case the required supply were to be delivered late. The business will never allow the stock level to drop below a certain point in order to prevent a resource shortage.
Maximum Level: this is the maximum amount of stock which can be held in the warehouse at any given time. This level is restricted by factors such as space; cost; and, delivery time.
Re-Order Level: this is when the stock level drops to a certain point and the process will automatically re-order the required stock. In order to decide at what point to re-order, businesses must consider the following: how long is the delivery time? how reliable is the supplier?
Lead Time is the time taken between making an order and its delivery, which replenishes stock.
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