What is the minimum stock level?
The minimum stock level is a term used in merchandise management and refers to a precisely defined stock quantity that must not be exceeded. The value is defined for each stored item. Alongside the reorder level and the maximum stock level, the minimum stock level is one of the three important key figures in warehouse management.
The minimum stock level is intended to ensure supply capability at all times, even in the event of disruptions in the supply chain or unforeseeably high demand. As long as the minimum stock level is available in the warehouse, a company's ability to deliver is guaranteed. Other terms for minimum stock are safety stock or iron stock.
The minimum stock level can be calculated using the following formula: Minimum stock level = average demand per day X delivery time in days
The reorder level is higher than the minimum stock level. If the reorder level is not reached, there is sufficient time to procure replenishment without affecting production or sales.
From a business perspective, it is important not to set the minimum stock level too high. After all, a high minimum stock level requires a high stock level. This increases the costs for storage space and financing (capital costs).
