Stock control charts

Stock Control Charts

This topic is assessed in IBDP Business Management at Higher Level (HL) only.

A stock control chart is a graphical tool used to manage inventory levels systematically — ensuring that stock does not fall so low that production is disrupted, nor rise so high that unnecessary holding costs are incurred. It plots stock levels over time and incorporates a set of defined control parameters that trigger reordering at the right point and in the right quantity. Understanding how to read and construct a stock control chart, and what each parameter means in operational terms, is a core HL production planning skill.

Key parameters

Maximum stock level. The upper limit of inventory the business chooses to hold — set to avoid excessive working capital tied up in stock, storage space constraints, and obsolescence risk. Stock should not rise above this level after a delivery.

Reorder level. The stock level at which a new order is placed with the supplier. It is set high enough above the buffer stock level to allow for the lead time — the stock consumed during the period between placing the order and receiving the delivery must be covered by the remaining stock above the buffer.

Buffer stock (safety stock). The minimum stock level maintained as a reserve against unexpected demand increases or supply delays. In a JIT system buffer stock is minimised or eliminated; in a JIC system it provides the key supply disruption protection.

Reorder quantity. The amount ordered each time a new order is placed — the vertical jump on the chart when a delivery arrives. It equals the difference between the stock level at delivery and the stock level just before delivery. Setting the reorder quantity determines how frequently orders must be placed and how high stock peaks after each delivery.

Lead time. The time elapsed between placing an order and receiving the delivery — represented on the chart as the horizontal distance between the order point and the delivery point. The reorder level must be set high enough to cover the stock consumed during this lead time: reorder level = buffer stock + (average daily usage × lead time in days).

Stock level (units) Time (weeks) 0 80 200 500 0 1 2 3 4 5 6 7 8 9 10 Max (500) RoL (200) Buffer (80) Lead time Delivery Reorder qty Order Order

The chart above shows Meridian Logistics Ltd's stock control for assembly housings. Maximum stock: 500 units. Reorder level: 200 units. Buffer stock: 80 units. Lead time: approximately half a week. When stock falls to the reorder level, a new order is placed; after the lead time, a delivery arrives and stock is replenished to the maximum level. The sawtooth pattern reflects the continuous consumption of stock at a constant rate.

Calculating the reorder level

The reorder level must be set high enough to cover stock consumed during the lead time, plus the buffer stock:

\[ \text{Reorder level} = \text{Buffer stock} + (\text{Average daily usage} \times \text{Lead time in days}) \]

This formula is not on the IB formula sheet — apply from understanding.

 Key Takeaways

  • A stock control chart plots inventory levels over time, with defined maximum stock, reorder level, and buffer stock levels shown as horizontal reference lines.
  • The sawtooth pattern reflects constant stock consumption at a given usage rate, falling until delivery arrives and restores stock to the maximum.
  • Lead time is the delay between placing an order and receiving delivery — the reorder level must be set high enough to cover stock consumed during this period plus the buffer stock.
  • The reorder quantity is the amount ordered each time — the vertical jump on the chart when delivery arrives.
  • Buffer stock is the minimum level held as insurance — in JIT systems it is minimised; in JIC systems it provides supply disruption protection.