Raw materials stock The quantity of raw materials required for production and the average time taken in obtaining fresh delivery – the combination of the above two factors decide the quantity of raw materials required to be kept in stock

Raw materials stock
The quantity of raw materials required for production and the average time taken in obtaining
fresh delivery – the combination of the above two factors decide the quantity of raw materials
required to be kept in stock. Suppose the total quantity of raw materials required in a year is
2,400 kg and one month is taken in obtaining a fresh delivery. Then a minimum stock of 200
kg of raw materials must be kept in stock (i.e., 2,400 kg / 12). Marginal increases have to be
made over this quantity on the basis of likely delays and other considerations. The quantity of
stock multiplied by the price per unit will give the amount of working capital required for holding
stock of raw materials.