Minimum stock is a well-known expression for storekeepers and managers in general. Despite this, it is not uncommon to find professionals who have doubts about what this expression is and how to calculate this index.

Inventory management is a crucial point in many types of companies. When done right, it ensures that every customer in your business will be well served – and that your company’s financial life will be kept up to date.

Do you want to better understand what it is and how to calculate this indicator? Follow the reading!

What is minimum stock?

Minimum stock is an indicator that corresponds to the minimum quantity of goods that need to be kept by the company in order to avoid shortages and excess of stocked products.

This term may also be known by other names, such as safety, reserve, or protection stock. But all these names refer to the same tool – and indicate the minimum quantity of products to be kept until the next purchase with the supplier.

In theory, when the company reaches this quantity of stored product, it needs to carry out a new purchase order, as it only has enough stock to cover the demand up to the deadline offered by the supplier for the delivery of the product.

The proper value of products in stock management varies according to the characteristics of the companies. A retail trade, for example, needs a larger stock, as it needs to serve customers immediately, while an industry needs to be more concerned with the amount of raw material and inputs to keep production running.

How important is the minimum stock?

Knowing how to calculate your value is of paramount importance in managing any business. After all, it indicates the minimum number of items needed for the company to continue operating and serving its customers. This information is also valid in cases of sales peaks, in order to avoid product depletion.

By calculating the safety stock, the manager is able to plan better, knowing when it is necessary to buy goods and avoiding keeping spare products, which can mean losses, or not having items to serve their customers, losing sales.

Anyone who works with the sale of perishable products needs to pay even more attention to this issue. After all, if you get stuck with items, you can lose them due to expiration – and the financial loss will be huge.

In addition, the minimum stock offers more security to managers, especially in extraordinary cases, such as the delay of a supplier – which could compromise its image with its loyal public.

How to calculate minimum stock.

Its calculation is not a difficult task, but you will first need to make another formula, referring to the average daily consumption of a certain commodity.

1. update inventory

Before thinking about applying any formula, it is of paramount importance that your store’s inventory is up to date. Therefore, have control of everything that enters and leaves your company, lowering sales and keeping an updated file with exact quantities and variations depending on the time of year and festive dates.

These data are essential in stock management – and also influence the calculation of the minimum stock. Using technology is an excellent way to have a more reliable inventory.

2. Calculate average daily consumption

Average daily consumption must be calculated from the sales record, so it is essential to have all this information well organized and accurate.

Average daily consumption = consumption of goods in a given period/days of the period analyzed

If the value reached is less than 1, this indicates that you sell, on average, less than one unit of product per day, that is, there are days when no product is sold.

Is it still difficult? Let’s take an example: suppose you sell, on average, 120 units of product X in one month. Thus, your average consumption would be 4 (120/30) units/day.