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Material consumption varies from day to day, week to week and hence accurate forecasting is not possible. A safety or reserve stock is kept to avoid stock-out. The desirable safety stock level is that amount which minimises stock-out costs and also the carrying costs. This level is a level stock between the minimum level and nil stock. It is calculated for those items which can be utilised for multiple orders or products. The store-keeper usually does not issue once the danger level is reached. Usually priority is given to some order/product for the use of these items. This level is fixed up specially for control of production so that priority items can be produced This level is sometimes fixed above the minimum level. In this case, this level is preventive. If the level is below the minimum level, this level is corrective. The safety stock level can be computed as follows: Safety stock level = Ordering level - (Average rate of consumption x Re-order period) OR (Maximum rate of consumption - Average rate of consumption) x Lead time (d) Ordering Level The annual consumption of an item and the time lag between ordering and receiving can be collected from past records. Based on these facts and policies, the ordering level and ordering quantity can be calculated, as follows: p50 Ordering level = Minimum level + Consumption during time lag period OR Maximum consumption x Maximum re-order period. OR num consumption x Lead time + Safety Stock The ordering level should be fixed so that when an indent is placed at the ordering level, the stock reaches the minimum level when the replenishment is received. The ordering level is calculated from the following factors (a) The expected usage (b) The minimum level (c) The lead time. The order point is calculated keeping in mind the worst conditions so that minimum stock is always maintained. Illustration 1 Materials X and Y are used as follows: Minimum usage - 50 units each per week Maximum usage - 150 units each per week Normal usage - 100 units each per week Ordering quantities X 600 units Y 1,000 units Delivery period 4-6 weeks Y 2-4 weeks Calculate for each material (1) Maximum level (in) Minimum level and (i) Ordering level

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