9609 · 4.2.1
Managing inventory — FAQ
Frequently asked questions for 9609 Managing inventory. Direct answers first, then deeper explanation — then practise with marking.
Is holding more stock always better to avoid running out?
Not necessarily. While high stock levels reduce the risk of a stock-out, they significantly increase holding costs (storage, insurance, opportunity cost) and the risk of obsolescence. Effective inventory management aims to find the optimal balance that minimises the total costs of holding stock and the costs of potential stock-outs, not simply to avoid stock-outs at any price.
Is buffer stock just 'extra' stock that is never used?
Buffer stock is a strategic reserve, not simply 'extra' stock. Under normal conditions, inventory levels should not fall into the buffer zone. It is specifically there to be used during unexpected events, like a supplier delay or a surge in demand. It is a crucial component of risk management, and once used, it should be replenished.
Does the re-order level have to be higher than the buffer stock level?
Yes, always. The re-order level is the trigger point for placing a new order. It is calculated to cover the expected demand during the lead time, plus the buffer stock. A common formula is: Re-order Level = (Average daily usage x Lead time in days) + Buffer Stock. This ensures that the stock used while waiting for the new delivery does not deplete the safety buffer, which is reserved only for emergencies.