a) If a particular material item is freely available throughout the year, a smaller stock level
can be conveniently maintained. But if the item is available only in seasonally, or if its
price fluctuates drastically, larger stock levels will have to be maintained.
b) Lead time is the period that elapses between the day an order is placed and the material is
actually received from the supplier in the warehouse. Materials with a shorter lead time
can be stocked in smaller quantities and vice-versa and ordered in good time to avoid
stock-outs.
c) While the stock lies in the store, it incurs certain costs like the cost of capital tied down,
rent, rates, maintenance of warehouse, insurance, breakages, etc. hence only those items
which must be carried in larger quantities for production or other economic reasons
should be carried, others should be kept to as low a level as possible.
d) Preparation for an order to be placed with a supplier, particularly an overseas supplier,
can involve considerable expenses. If the cost of making an order is high, it would be
prudent to make as few orders as possible. This implies making orders for larger
quantities and hence carrying larger stocks.
e) Nature of items being stored is also important. Some items can just not be stored for long
and must be acquired frequently, eg fruits.
f) The rate at which each stock item is used up by the production department is very
important. Through experience, it is possible to determine for each item as to what are its
rate of maximum consumption, minimum consumption, and average (normal)
consumption per week. These rates are then used in deciding upon various stock levels.
Wilfykil answered the question on April 17, 2019 at 07:19
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