Inventory Control Diagram

Question 1

What are the 3 parts of the Inventory Control Diagram?

Answer 1

Maximum Inventory Level
Minimum Inventory Level
Re-order Level
Re-order Quantity

Question 2

What is the Minimum Inventory Level?

Answer 2

The highest amount of inventory an organisation should hold before it incurs extra costs.
(DONT NEED TO REMEMBER):
This will be decided by the physical space available, the normal day-to-day production needs, delivery time from suppliers, buffer inventory etc.

Question 3

What is the Minimum Inventory Level?

Answer 3

The lowest amount of inventory an organisation should hold below which they would become understocked.
(DONT NEED TO REMEMBER):
This will be decided by the need to hold a buffer inventory to allow for new supplies to be received before inventory runs out and to cover short-term production needs.

Question 4

What is the Re-order Level?

Answer 4

The point at which a new order is placed with the supplier.
(DONT NEED TO REMEMBER):
This will be determined by the day-to-day production needs and delivery times.

Question 5

What is the Re-order Quantity?

Answer 5

The amount of inventory ordered from your supplier.
(DONT NEED TO REMEMBER):
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.