Base stock definition
/What is Base Stock?
Base stock is the amount of inventory that a business needs to keep on hand in order to fulfill customer orders with a delay no greater than expected by customers. If inventory levels drop below the base stock level, reordering delays will likely result in the loss of customers.
The base stock level can vary substantially due to the effects of seasonality and changes in customer tastes, fashion trends, and so forth. Consequently, it is essential to periodically review your established base stock levels to see if they need to be altered. Otherwise, you will likely experience periods of excess investment in inventory, as well as periods during which excess demand results in stock-out conditions.
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Example of Base Stock
FreshBloom Florists, a local flower shop, specializes in delivering fresh flower arrangements within 24 hours of customer orders. After reviewing past sales data and customer expectations, the owner determines that the shop must always have at least 150 bouquets available in inventory to meet daily demand without disappointing customers — this is the shop's base stock. On most days, the store sells between 100 and 130 bouquets, but occasionally, during holidays or weekends, demand spikes unexpectedly.
By maintaining a base stock of 150 bouquets, FreshBloom ensures that it can fulfill regular customer orders and even handle minor demand fluctuations without delay. If inventory were to fall below this level and a sudden rush of orders occurred, the store might be unable to meet the promised 24-hour delivery, risking customer dissatisfaction and lost future business.
To avoid this, FreshBloom closely monitors inventory. Whenever the bouquet count approaches 150 units, a reorder is immediately placed with its local flower suppliers to replenish stock before it drops further. This careful management of the base stock helps the shop balance customer satisfaction with the cost of holding perishable inventory, ensuring reliability and competitiveness in the market.