Author: Jim Riley Last updated: Sunday 23 September, 2012
A stock control chart is a graphical illustration of a simple approach to stock management over time. This ‘saw tooth’ shaped diagram is normally shown as if sales were steady throughout each month. Whilst this oversimplifies the situation for many businesses, the principles can be adapted to most situations.
The key features and terms are:
Maximum stock level – this is the maximum amount of stock a business would wish to hold. This could represent enough stock for a month or a week, it might be as much as the warehouse has space for, or it might depend on the order size needed to qualify for a quantity discount – known as the Economic Order Quantity (EOQ). On the diagram below, the maximum stock level is 600 units, and the usual order quantity is 500 units
Re-order level – this acts as a trigger point, so that when stocks fall to this level, the next order should be placed. This helps take account of fluctuations in sales levels over time. When an order is placed, there is a lead time that the supplier needs to meet that order. Ideally this new order will arrive just before stocks fall below the minimum stock level. On the diagram below, 300 units
Lead time – the amount of time between placing the order and receiving the stock On the diagram below, just under two weeks
Minimum stock level – this is the minimum amount of product the business would want to hold in stock. Assuming the minimum stock level is more than zero, this is known as buffer stock – see below. On the diagram below, 100 units
Buffer stock – an amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers.