Minimum and maximum stock

Minimum Stock

 A minimum stock level is a threshold value that indicates the level below which actual medicine stock should not normally be allowed to fall.

In other words, a minimum stock level is a minimum quantity of a particular drug/ medicine that must be kept at all times.

The main factors to consider when fixing the minimum stock level are:

• Average consumption
• Time needed to procure/ receive from supplies/ reporting facility, i.e., Lead time
• Reorder level (a fixed stock level between the maximum and minimum stock levels, at which a request for supply will be placed)

The minimum stock level can be calculated by applying the following formula:

Minimum Stock Level = Reorder level - (Average consumption per time period under consideration x Time taken for delivery)

(time period may be day/ week/ month/ quarter)

Maximum Stock

A maximum stock level is the upper limit of stock that should not be exceeded under normal circumstances without the prior agreement of the management.

The aim of setting a maximum stock level is to maintain the inventory level at the warehouse.

The main factors to consider when fixing the maximum stock level are:

• Average consumption
• Availability of storage space
• Economic order quantity
• Time needed to procure/ receive from supplies/ reporting facility
• Cost of carrying inventory or cost of storage

The maximum stock level can be calculated by applying the following formula:

Maximum Stock Level = Reorder level + Reorder quantity - (Minimum consumption per time period under consideration x Minimum time taken for delivery)

Figure: Stock Re-ordering Level; Source: Inventory Management.

Resources

• Maximum STock Level in Inventory Management, Interlake Mecalux.
• Inventory Management.

Assessment