1. Setting the right stock levels
Best Practice in Inventory Management
Chapter 8
Setting the right stock levels
Dr Tony Wild

2. Figure 8.1 Inventory Level
Order
Order
Delivery
Supply
Delivery
Lead time
Review Level
Quantity
In Stock
Delivery Use
Quantities
Safety Stock
Time
Stock should consist of two basic parts:
Delivery quantity stock, because stock is provided in bulk
Safety stock to cope with excess short term demand (or supply failure)
Best Practice in Inventory Management

3. Figure 8.2 Items with average demand of 31
Best Practice in Inventory Management

4. Figure 8.3 Review Levels
T73
56.3
149.3
For LT 3 weeks & Availability 90%
Item
Safety stock
Review Level
T15
19.7
112.7
T26
94.2
187.2
Best Practice in Inventory Management

5. Supply Lead time (weeks)
Figure 8.4 Varying the Conditions
Item
Supply Lead time (weeks)
Availability %
Safety Stock
Review level
T15 2 90
16.07
78.07 95
20.68
82.68 99
29.22
91.22 4
22.72
146.72
29.25
153.25
41.32
165.32
T26
76.93
138.93
99.05
161.05
139.92
201.92
108.80
232.80
140.08
264.08
197.88
321.88
T37
45.25
107.25
58.27
120.27
82.31
144.31
64.00
188.00
82.40
206.40
116.40
240.40

6. Best Practice in Inventory Management

7. Figure 8.6 Effect of Supply batch size on Availability
Best Practice in Inventory Management

8. Figure 8.7 Safety stock correction for delivery quantity
Best Practice in Inventory Management

9. Pre-determined stock level
Figure 8.8
Periodic Review Level
Stock level (units)
Time (weeks)
2000
1500
500 8 1 2 3 4 5 6 7
1000
Stock level
Review Cycle
Pre-determined stock level
1300*
leadtime
800*
Target Stock Level
* Delivery Quantity
New stock is ordered at fixed points in time.
Best Practice in Inventory Management

10. Key Points Calculate review level Expedite
Forecast and don’t worry about supply lead times
Supplier Delivery patterns are key
MAD calculates safety stock
Co-ordinating supply using target stock levels
Best Practice in Inventory Management