hello everyone you're watching saheb Academy if you like our videos then please subscribe to our Channel and also hit the bell again for the regular updates and also follow us on Instagram so have Academy now let's go to the video hi everyone in this video we are going to see this another topic of material costing that is maintaining stock levels maximum stock level minimum stock level average stock level reorder level and all that yeah so before going into this stock levels first you have to understand inventory control why because maintaining quantitative stock levels it's a method of inventory control so first let's understand what is inventory control and then let's see a method of it yeah for see here the definition of inventory control the SEMA defines inventory control as the function of ensuring that sufficient goods are retained in the stock to meet all the requirements without caring unnecessarily large stocks simple so here the basic goal of inventory control is to maintain a balance between sufficient stock and overstock yes we have to maintain sufficient stock so that our requirements can be fulfilled what is the requirement the requirement is that our production should be running smoothly there should not be any interruption and we should not lose any money so we have to maintain sufficient stock and we can't maintain you know unnecessarily large stock overstocking because if we do that then what will be happening will be incurring lots and lots of cost yes there will be a wastage so there should be a balance between sufficient stock and large stock yes over stock that's the inventory control now the management have different different methods you know of doing inventory control one of the method is by setting quantitative stock levels or you can say inventory levels yeah now here we have to understand the stock levels see here it's very simple first we have got reorder level when to order reorder quantity how much to order maximum stock level up to how much maximum to stop yeah maximum and then minimum stock level at least how much to stop right this is the minimum stock level yeah and then we have got average stock level this is the stock that is normally kept and have got dangerous stock level this is kept for emergency requirement okay stock that is kept for emergency requirement that is called dangerous stock level at is below the minimum level and then you have got buffer stock now buffer stock is the stock that is maintained you know below the minimum level it's not a level it's the minimum inventory the minimum stock understood to mitigate the sudden demand fine that is what is buffer stock and then see here first let's understand reorder level now practically see here with the help of this graph now in this graph we have got stock level on the y axis and time on the x axis fine so first what will be happening is first let's say you have this much stock in your warehouse and then you will be sending out the materials from your warehouse to the production department that is called consuming the materials you're using of the materials you're sending out so your inventory is reducing yes it will go on getting depleted areas it will go on reducing until it reaches a point that is called reorder level when it reaches the reorder level at this point reorder level what you are going to do is you are going to place a fresh new order with your supplier yes but are you going to get your order immediately no it will take some time right your supplier he will take some time let's say one week yeah he will take some time that's called shipping period yes lead time that is called lead time here lead time reorder period or shipping P radius so now so you will not be receiving the order immediately so whatever inventor you have you will be go on using that inventory and it will be reducing reducing reducing till it reaches the minimum level now when it reaches the minimum level what will be happening is you will be receiving the order from your supplier the order will be delivered so immediately your stock will increase yes back to the maximum level your understanding first it was at maximum level only you are using it up then when it reached the reorder level you placed a fresh new order but you are not going to receive it immediately the order from your supplier it will take some time and that time is called lead time the shipping time yes and then you're using of the materials till it reaches the minimum level point yes at minimum level and then you are going to receive the order immediately your quantity your stock will increase back to the maximum level right this is what will be happening this cycle will be happening fine so reorder level is a level at which you place a fresh new order and then reorder quantity what is reorder quantity this is reorder country you see this this line this is the reorder quantity how much to order yeah you place the order over here when you reached at this point you got the order the quantity of the order this is the quantity of the order yeah immediately your stock went back to the maximum level yeah so you understood you order quantity and then yo q EO q is the optimum quantity we have seen that in the previous video economic ordering quantity its a quantity at which our carrying cost and ordering cost is at minimum reorder quantity answers to our question that is how much to order yeah how much to order this much to order till it goes back to the maximum level or yo Q right we will see that in the problem see here then we have got maximum stock level now this is the maximum stock level yeah we have to maximum stock our inventories up to this level maximum level we don't have to go above the maximum level if we go above the maximum level then we are going to make wastage fine and then we have got minimum stock level now minimum in stock level is at least how much to stop yes we should not let our inventory fall below this level okay below this minimum level okay at least how much to stop and then we have got average stock level that is stock that is normally kept in the you know warehouse and then we have got danger stock level danger stock level is another you know another level that is below the minimum level it's a level I understood danger stock level kept for emergency requirement and then we have got buffer stock buffer stock is the minimum inventory that is below the minimum level this much yeah this is the buffer stock yeah to mitigate certain demand yeah this is buffer stock fine so now you understood right we have got what reorder level maximal level minimum level and then lead time now see here in lead time what will be happening is when you make an order to your supplier what your supply will say the order will be delivered within one two three weeks one two three weeks so now this one is many time minimum delivery period yeah one week and then three week is the maximum delivery period when you make an order on Amazon or any e-commerce website what do you get you get a limit right you will receive your order on 5th January to 8th January yeah something like that so that is one solely time there will be two types of lead time maximum minimum okay and then average also so how will you take average lead time simple maximum plus minimum lead time / - that's how you will get average lead time you will need that while calculating you know various stock levels understood average lead time minimum any time maximally type it's very simple it's just a delivery period yeah one week three week so three week is the maximum one week is the minimum and then average would be what 1 + 3 that is 4 divided by 2 that is 2 week yes that is what is average late time minimum anytime and maximum lead time okay so you have an idea now right what is maximum level what is minimum level what is reorder level yes ok so now let's see the formulas now and let's see how to calculate these levels now here we have the formulas see here the first formula we have God is of a reorder stock level yes it is the level at which fresh order should be placed for replenishment of stock now we have got two formulas of reorder level yeah the first formula is maximum consumption into maximum lead time now you already know what is maximally time it is the maximum reorder period isn't it but what is maximum consumption see it's very simple in our warehouse what will be happening will be having the inventory right in our warehouse then what are we going to do we are going to consume that inventory by consuming I mean we are going to send the inventory to the production so in our warehouse what will be happening our inventory will be getting depleted that is called consuming the materials so maximum how much can be consumed that is called maximum consumption right so maximum consumption into maximum lead time that is the first formula of reorder level the second formula is C here minimum stock level plus average consumption into average lead time that's the second formula right and then we have reorder quantity now what is this reorder quantity it is the quantity of materials to be ordered in a fresh purchase yeah how much to order that is what is for the order quantity reorder level is when to order you will order when you stock reaches reorder level fine you have to make an order but how much to order what quantity should be ordered that is a reorder content it is the quantity of materials fine now we have got another that is a oq economic order contrary it is the most economical quantity to order okay this is also our oaky only but this is a oq economic it's the most economical roq you can say that why because the size of an order the quantity of an order at which our total of ordering and carrying cost are minimum that's the thing if you make an order of this yo Q quantity what will be happening is your cost will be minimum that is what this is called most optimal quantity to order or most economical quantity to order economic order quantity and we have seen the concept and everything and you have solved problems also of yo Q in a separate video yeah I will put the link of that video in the description below so the formula of yo Q is the root of 200 divided by C now what is this a is annual consumption how much inventory do we need annually that's annual consumption or annual demand you can say and then we have got oh that is cost of placing one order and C is carrying cost per unit or holding cost per unit fine so this is the formula you have to use to calculate your Q will see that while solving the problem then we have got minimum stock level and maximum stock level see here it's very simple it is the lowest level of stock which must be maintained in hand at all times that is the minimum stock level we don't let our inventory fall below the minimum level isn't it we don't let our inventory fall below the minimum level and maximum level is the it is the highest level of stock isn't it we don't let our inventory go above the maximum level if it goes above the maximum level then there will be wastage yes unnecessary cost would be there yes so see here the formulas of minimum stock level maximum stock level are almost same you see the formulas minimum stock level is equal to reorder level minus average consumption into average lead time okay and then the formula of maximum stock level is maximum stock level is equal to the reorder level yeah same reorder level plus reorder quantity plus roq minus minimum consumption into minimum lead time now most of the students make mistake you know they get confused between these two formulas see yes very simple to understand see the technique what you have to understand is first you have to understand this formula maximum stock level formulas is very simple this formula yeah it is a formula of maximum stock level so of course this formula has to be big yeah you can think like that maximum so the formula is also maximum yes so see here the formula reorder level plus there is extra element that is roq reorder quantity and then minus but here what you are going to take opposite of maximum minimum consumption minimum lead time simple this is how you are going to remember the formula of maximum stock level yeah and then you can easily you know make this formula how is it see here minimum stock level is equal to the same thing reorder level but this is minimum formula so it has to be short yeah so directly go here - yes a minus - yeah then here you don't have to take minimum yeah here you have to take average consumption into average lead time that's all you have to remember in minimum there is average and in maximum there is opposite minimum understood simple yeah then we have see here then we have got average inventory level this is the quantity of material that is normally held in stock yes that is what is average inventory level what is average in multi-level average inventory is the inventory that is normally kept in the warehouse yes see here average stock level or average inventory level stock normally kept in the warehouse that is your average inventory level so see here the formula average stock level is equal to minimum stock level plus half of reorder quantity now see the logic behind this formula see here what would normally be there in the warehouse the minimum stock yes the buffer stock will always be there in warehouse normally yeah in normal situation the buffer stock the minimum inventory will always be there yeah so you can take Mims ah Cleveland that would always be there yeah plus half of reorder quantity now whatever orders you are going to make everything will not be there in your warehouse at all times you can say half of it this is reorder quantity right roq when you make an order here at reorder level you receive the order when the stock reaches at minimum level yeah then the Roq comes in the quantity then immediately your stock goes back to the maximum level so this is what this is roq isn't it this thing this is arrow Q so you can see half of our OQ may be there in your warehouse at all times yeah so that's why this is the formula that is minimum stock level yeah plus half of reorder quantity okay this is the first formula but if you can't calculate average stock level with this formula then you can use this formula this is the alternative formula maximum stock level plus minimum stock level / - just an average yeah but this is the you know most preferred formula the first one right then we have got danger level it is the level at which normal issues of the raw material inventory are stopped and emergency issues are only made now you know the danger level is below the minimum level our stock has gone below the minimum level so what we do is we stock all the normal issues yeah the normal production we stop that only emergency production emergency issues will be made yeah that's the thing so the formula for that is see here average consumption into lead time for emergency purchase yeah so this is the formula and then we have got buffer stock now for buffer stock there's no formula it'll be given to you no question yeah the stock this is the buffer stock right the stock that is below the minima level yeah the quantity whatever that is there below the minimum level that is called buffer stock minimum inventory this so some quantity of stock may be kept for contingency to be used in case of sudden order such stock is known as buffer stock simple so these were the formulas of stock levels yeah simple right yeah very simple novelist all the problems