Let’s look at the first type of Stock control system namely the Re-Order Level System which is also known as the Two-Bin system:
Traits/Characteristic Of This System:
· A pre-determined re-order level is set for each stock item;
· Once the stock falls below the re-order level, a replenishment order is issued and
· This is like a two-bin, where stock is segregated into two bins, once stock from bin no 1 is depleted a replenishment order is initiated
Advantages of Using the Re-Order System method:
· Convenient to use as the generation of a replenishment order is automatic by comparing each stock item level against its re-order level;
· Seems to be more responsive to fluctuation in demand;
· Lower stocks on average;
· Suitable for widely differing types of stock within the same business.
Disadvantages of Using the Re-Order System method:
· Might not be suitable where stock item has variable demand, ordering costs etc as the computation of Economic Order Quantity(EOQ) is less accurate:
· Stock itemÂ for re-ordering does not follow a fixed sequence;
· Many individual stock items may reach re-order level at the same time hence overloading the re-ordering system.
Assuming the following data for Stock A:
Normal usage 100 per day
Minimum usage 50 per day
Maximum usage 120 per day
Lead Time 30-40 days
Compute the various stock control level?
=Maximum usage x Maximun Lead Time
=120 x 40
=Re-order level- Average Usage for Average Lead Time
=4,800 -(100 x35)
=Re-order level + EOQ -Minimum usage in lead time
=4,800+6,000-((50 x 30)
- Explain What Are Stock Reorder Level, Maximum, Minimum and Safety or Buffer Stock Level, Their Purpose And Formula.
- Stock Control (Part 1)
- What Are The Non-Price Determinants Of Demand
- What Are The Major Non-Price Determinants Of Supply
- Accounting For Stock: What Is Cost Of Goods Sold And Methodology ( Part 2)