Effective Inventory System Terms

• Maximum (Economic) Level

  • The level the inventory should not go above. This should take into account storage space and finance available.
• Minimum Level

  • The lowest amount that should be in stock at any one time to ensure that the business does not run out of stock.
• Re-Order Level

  • The level at which new inventory is ordered, taking into account how long the supplier will take to deliver it. This ensures that you don't fall below the minimum level.
• Re-Order Quantity

  • The amount of Inventory to be ordered to bring it back to the economic level. This is determined by the lead time, finance available, what the minimum level is and the amount of storage space available.
• Lead Time

  • The time between ordering new inventory and when it arrives.
• Buffer Inventory

  • The amount of Inventory under the minimum level which is kept in case of supplier or delivery delays.