Inventory Management 101 – Min Max Inventory Calculation

The Min/Max inventory ordering method is the basic method of inventory control.  There are two lines

a.    Min – Minimum amount of inventory is the value represents a stock level that triggers a reorder process

b.    Max- Maximum value represents a the target stock level, will not trigger to ordering activities.

Table 1

Table 1 illustrate the formula for calculation and analysis. This example includes one week of safety stock

·       Reorder quantity. The Reorder Quantity

·       Reorder decision. Either to order or not to order

·       Min value. The level which will trigger the reordering process

·       Max value. The reorder quantity.

·       Safety Stock. The level of safety stock

1.    Daily Run rate: Average daily run rate base on either weekly working days or calendar days

2.    Safety stock: Daily run rate *lead time (=F2*G2)

3.    Min: (Daily Run Rate  X Lead time )+Safety Stock ((F2*G2)+H2)

4.    Max: 2 cycles of Safety Stock (Daily Run Rate X Lead time)*2. (=H2*2)

5.    Reorder Quantity: Reorder quantity with Safety Stock (=H2+I2)

6.    Reorder Analysis: If Reorder quantity is more than Balance Quantity plus Safety Stock, the decision is to order. As the inventory on hand will not be sufficient to cover the daily run rate for the duration of lead time.

=IF(K2>(E2+H2),"order","enough")

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