Page 272 - DCOM303_DMGT504_OPERATION_RESEARCH

Unit 13: Inventory Control

(iv) Danger stock level (D.L.) Notes
(v) Average stock level (A.L.)

Maximum Stock Level (Mx. S.L.)

Maximum Stock Level represents the maximum quantity of material which a store can hold at
any point of time. This level is fixed such that the stock of material should exceed over and above
this level resulting in overstocking of materials. Mathematical representation of level is given
by,

[Mx. S.L = (ROL + ROQ/EOQ – Mn. C × Mn. L.T.)]
Mx.L = Maximum Stock Level
ROL = Reorder Level
ROQ = Reorder Quantity

Mn.C = Minimum Consumption
Mn. L.T. = Minimum Lead Time

Minimum Level (Mn. S.L.)

It represents the minimum quantity of material which must be stored at all times. This quantity
is fixed in order to avoid the sudden shortage of material and which may hamper the production
and is mathematical derived as:
[(Mn.S.L) = (ROL – NC × NLT)]
NC = Normal Consumption

NLT = Normal Lead Time
Reorder Level (ROL)

ROL represents a level which is fixed between the Mx. S.L. and Mn. S.L. such that when the
materials reach this level, it is a signal that the purchaser has to place fresh orders for the
materials. It is represented mathematically as
[ROL = (Mx.Con × Mx. L.T.)]
Mx.Con. = Maximum Consumption
Mx.LT. = Maximum Lead Time

Danger Level (D.L.)

It represents a level which is fixed below the Mn. S.L. As and when the stocks reach this level,
urgent action should be taken to replenish the stock to avoid stock-outs. When the level is
reached, normal supply to the Production Department would be stopped and material would be
issued only on specific instructions.
Mathematically, D.L. is;
D.L. = (Mn.C × Mx.L.T. for emergency purchases)

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