Maximum inventory level equals which of the following?

Maximum inventory level equals which of the following?

• A. Buffer inventory plus maximum reorder quantity
• B. Buffer inventory
• C. Reorder level
• D. Average usage

Answer: (A)

In inventory control, the maximum inventory level is the peak quantity you hold after a replenishment arrives. It comes from the cushion you keep to guard against demand or lead-time uncertainty (buffer stock) plus the size of the replenishment you receive (maximum reorder quantity). So the maximum level equals buffer stock plus the maximum reorder quantity. For example, if you keep 100 units as safety stock and orders can be up to 200 units, the highest stock you'll hold is 300 units. It’s not just the buffer stock, which is the safety cushion, and it’s not the reorder level, which is the trigger point to place an order, nor the average usage, which is about consumption rate rather than stock on hand.

In inventory control, the maximum inventory level is the peak quantity you hold after a replenishment arrives. It comes from the cushion you keep to guard against demand or lead-time uncertainty (buffer stock) plus the size of the replenishment you receive (maximum reorder quantity). So the maximum level equals buffer stock plus the maximum reorder quantity. For example, if you keep 100 units as safety stock and orders can be up to 200 units, the highest stock you'll hold is 300 units. It’s not just the buffer stock, which is the safety cushion, and it’s not the reorder level, which is the trigger point to place an order, nor the average usage, which is about consumption rate rather than stock on hand.