TABLE OF CONTENTS Numerous methods can be utilized to manage stocking levels and some can become quite complex. For this text, we will focus on four terms and how they can be used to improve the management of the inventory.
The first term is the maximum on-hand quantity. This quantity is the maximum number of spare parts that are to be on hand in the storeroom at any given time. While, there are sophisticated mathematical models that can be used to determine this quantity, it is sufficient to note that this number should provide the service level percentage that is cost effective for the company. The service level is the percentage of time that the part will be on hand (in sufficient quantity to meet the demand) when it is required. An appropriate service level is in the 95%+ range.
The second term is minimum on-hand quantity. This quantity is the fewest number of spare parts that should be on hand at any given time. For some spare parts, the minimum on-hand quantity is the same as the reorder point. However, this is not always the case. The reorder point must be set at a level that factors in the delivery time for the spare part. If the minimum on-hand quantity is the reorder point, and a demand for the part occurs before the order is placed and received, then the on-hand quantity will drop below the minimum. Then, depending on the minimum...
