Stock Control System- Re-Order Level System (Part 3)

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 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.



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

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