Q.Explain the following stock levels:

A materials control system fixes five benchmark stock quantities so the storekeeper always knows exactly where stock stands.

(a) Re-order Level is the stock level at which a fresh purchase requisition must be raised (= Maximum Consumption × Maximum Re-order Period). (b) Minimum Level is the lowest stock normally allowed (= ROL − Normal Consumption × Normal Re-order Period). (c) Maximum Level is the highest stock normally allowed (= ROL + Re-order Quantity − Minimum Consumption × Minimum Re-order Period). (d) Average Stock Level is the typical stock carried (= Minimum Level + ½ Re-order Quantity). (e) Danger Level is an emergency level below Minimum, triggering urgent purchase action (= Av …

A materials control system fixes five quantitative benchmark levels for each important item of stock:

1. Re-order Level (ROL) — the level of stock at which a fresh purchase requisition must be raised, so that the new supply arrives before existing stock is exhausted. Formula: ROL = Maximum Consumption × Maximum Re-order Period.
2. Minimum Level — the lowest level of stock that should normally be allowed to fall to; falling below this level risks a stock-out if the next delivery is even slightly delayed. Formula: Minimum Level = Re-order Level − (Normal Consumption × Normal Re-order Period), where Normal Re-order Period is the average of the minimum and maximum re-order periods.
3. Maximum Level — the highest level of stock that should normally not be exceeded, since stock above this level ties up excess working capital and raises carrying cost. Formula: Maximum Level = Re-order Level + Re-order Quantity − (Minimum Consumption × Minimum Re-order Period).
4. Average Stock Level — the average level of stock a business can expect to be normally carrying, useful for estimating average working-capital tied up in that item. Formula: Average Stock Level = Minimum Level + ½ × Re-order Quantity.
5. Danger Level — an emergency level, set BELOW the Minimum Level, at which the normal re-ordering procedure is abandoned and urgent/emergency purchase action (through faster, often costlier means) is taken to avoid a complete stock-out. …

Students frequently confuse Minimum Level with Danger Level — Minimum Level is the LOWEST level under NORMAL operation, while Danger Level is a separate, LOWER emergency trigger reached only when something has already gone wrong with normal replenishment. Also, remember Normal Re-o …