On what basis is the volume of stock decided in a business? Is it value based or as per unit sales for number of days? please explain.

Read a book on Inventory management.

However go through the following:

The Critical Elements of a Pretty Good Inventory System

• Well Organized Location Names
• Location Labels that are easy to read, and unambiguous
• Unique, Short, and Unmistakable Item Numbers
• Units of Measure
• A Good Starting Count
• Software that tracks all inventory activity
• Good Policies
• Most Important: People who know and follow good policies

Deciding how much stock to keep depends on the size and nature of your business, and the type of stock involved. If you are short of space, you may be able to buy stock in bulk and then pay a fee to your supplier to store it, calling it off as and when needed. Basically it is decided upon sales volumes in a given period.

The general rule of calculating the minimum stock depends on the lead time (in weeks) needed to receive the products from your supplier and maximum number of sales per week.

Minimum stock =  Max Lead time  X  Max Sales

But you have to take other issues into consideration. Ask yourself some key questions to help decide how much stock you should keep:

• How reliable is the supply and are alternative sources available?
• Are the products produced or delivered in batches?
• Can you predict demand/ Sales?
• Is the price steady?
• Are there discounts if you buy in bulk?
• Can you keep the product for long? Does it have short expiry date?