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optimum stock level in month = sales ber month + emergncy inventory
in your situation :
optimum stock level in month =2M +1/2 M
Like most people have pointed out here, your optimum inventory level will not have a simple formula (like a+b=c). In fact, you will have to look at the products you're selling, the movement of goods (keeping in view seasonal changes), your warehousing/holding costs, minimum order quantities specific to your products/company and so much more. In short, you will have to run through at least a year of data from your supply chain to figure out what should be your optimum stock level. Do note that this means you have to look at each product separately. And of course it matters how much money your company can afford to block at any given time.
Well it depends on multiple factors. It may differ in different situations. Main factors are:
> Sales of all products,
> Safety stock,
> Lead times of suppliers,
> Nature of product (e.g. FMCG or slow-moving),
> Shelf life of each product.
> Seasonality,
> Availability of working capital,
> Discount offered by suppliers on bulk quantities,
> Availability of liquidation plans for discounted bulk purchases
> Economic order quantity,
> Cost of financing offered by financing Institutions & discount offered by the vendors.
> Warehousing & holding cost
> Availability of space in warehouse
> Required Inventory turnovers
These are minimum factors to be considered while selecting optimum level of inventory of any trading company.
Inventory Management can be categorized in to three types as below
A- Fast Movement - it is continued replenishment needed which based on cycle time ( Cycle Time = Received Date - Order placed date)
B-Moderate Movement -Optimize stock to be maintained ( Optimize Stock =Safety Stock+ Average consumption per day * cycle time )
C-Deadly Movements-Min stock to be maintained and need to convenience to customer for delivery of this category for delivery time
Dear
the optimum level of inventory depends on multiple factors, not only sales and the corporate priorities differs from one to an another, where inventory holding cost , orders setup cost , order lead times , and the volume of working capital all shall be considered to determine which inventory level would be appropriate for your firm and it's strategy
Minimum and maximum levels of inventory is depends on many things not just the sales , turn over of inventory , inventory cost , delivery periods and cost of storage also must be considered while you are sitting your minimum and maximum of inventory levels .
before determining inventory level first you have to consider factor such as nature of inventory in order to make an appropriate decision about it
it depends on the turn ratio of the active Inventory for example of the last three years. i suggest you can calculate the turn ratio of the last three years for your active inventory and to use this factor as an indicator to control your whole inventory. and sure turn ratio include the handling and purchasing cost and selling price, and current available stock.
The optimum stock level should be in accordance with your monthly sale.
we should always have a one month stock.( to days inventory)
The stock level would relate more to the quantities of items being discussed rather than reviewing the sales figure alone.Stock level can be reviewed in a better way if there is a movement of item for atleast the last3-4 months (or ) so.
In this case, as it is too early to call out a reorder point,I suggest you would classify the various materials into different categories ordered that led to the2M figure and discuss with the end user on the forecast of the materials ordered as you may not need the same materials in the next month .So any assumption without a forecast discussion with the end user may lead to ordering of materials that would eventually end up in the warehouse with less (or) no movement and adding up inventory value .
