Maximum Stock level

The maximum stock level is the quantity of material above which the stock of an item should not normally be allowed to go. This level is fixed after taking into account such factors as: capital, rate of consumption of materials, storage space available, insurance cost, risk of deterioration and obsolescence and economic order quantity, etc.

How do we evaluate the maximum stock level?

Firstly, let's consider the point at which stock drops to the Re-Order Level (ROL). At this point, an order is placed for the Re-Order Quantity (ROQ). If the ROQ order could be delivered instantaneously, the Maximum Stock Level you would ever have is ROL + ROQ.

However, it takes some time for the order to be delivered and during this period, some of the stock will be used. Therefore we have to take this 'consumed' quantity into account as it would reduce the Maximum Stock Level to less than ROL + ROQ.

The two factors that determine this quantity are the 'Daily Usage' and the 'Delivery Leadtime' in days. Therefore going back to the formula we can now evaluate a realistic Maximum Stock level to be

ROL + ROQ - (Daily Usage x Leadtime in Days)