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:
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Traits/Characteristic Of This System: |
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· 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
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Advantages of Using the Re-Order System method: |
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· 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.
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Disadvantages of Using the Re-Order System method: |
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· 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 item 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.
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Illustration: |
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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 EOQ 6,000
Compute the various stock control level?
Re-order level =Maximum usage x Maximun Lead Time =120 x 40 =4,800 units
Minimum level =Re-order level- Average Usage for Average Lead Time =4,800 -(100 x35) =1,300 units
Maximum level =Re-order level + EOQ -Minimum usage in lead time =4,800+6,000-((50 x 30) =9,300 units |