*inventory control diagram

Question 1

maximum inventory level

Answer 1

the highest amount of inventory an organisation should hold before it incurs extra costs.

this will be decided by the physical space available, the normal day-to-day production needs, delivery time from suppliers, buffer inventory etc

Question 2

minimum inventory level

Answer 2

the lowest amount of inventory an organisation should hold below which they would become understocked.

this will be decided by the need to hold a buffer inventory to allow for the new supplies to be received before inventory runs out and to cover short term production needs

Question 3

re-order level

Answer 3

the point at which a new order is placed with the supplier.

this will be determined by the day-to-day production needs and delivery times

Question 4

re-order quantity

Answer 4

the amount of inventory ordered from your supplier.

this will be determined by the lead time of your supplier (the time between ordering and receiving inventory) but also by how quickly you will sell inventory whilst you wait