Enter the optimal order quantity, the minimum stock, and the safety stock into the calculator to determine the optimal stock level.

Optimal Stock Level Formula

The following equation is used to calculate the Optimal Stock Level.

OSL = OQ + MS + SS

  • Where OSL is the optimal stock level (units)
  • OQ is the optimal order quantity (units)
  • MS is the minimum stock amount (units)
  • SS is the safety stock amount (units)

To calculate the stock level, simply add together the optimal order quantity, minimum stock amount, and safety stock amount.

What is an Optimal Stock Level?

Definition:

Optimal stock levels are the amount of inventory a company should hold on hand to ensure an adequate level of service without incurring unnecessary costs. A company should maintain optimal stock levels for both finished goods and raw materials.

Determining the right amount of inventory to maintain can be challenging because it depends on many factors, including market conditions, lead times, production capacity, and the cost of carrying inventory.

While there is no one-size-fits-all answer to how much inventory a company should maintain, several guidelines can help determine whether or not a company has sufficient stocks on hand.

A company should always have enough inventory to replenish its supply chain. No matter how good a supplier’s lead time is, if the components used in manufacturing a product are not kept in stock, the production line must shut down until those components arrive.

This results in lost revenue for both the manufacturer and customers who may have wanted the product but could not purchase it in time.

A company should also have enough inventory to meet customer demand without incurring unnecessary costs or requiring additional storage space for holding excess inventory.

Too much or too little inventory can result in lost sales and higher prices for consumers and lower margins for producers.