Min/Max Inventory

It is simple enough to run in a spreadsheet or WMS and works well for stable SKUs. It reacts poorly to seasonality unless min and max are updated regularly.

Order quantity = max − current inventory position (on-hand + on order − allocated)

How do you set min and max inventory levels?

A common approach sets the minimum at the reorder point, which is expected demand during lead time plus safety stock, and the maximum at the minimum plus a typical order quantity. Review both when demand or lead times change.

• Reorder PointThe inventory level at which a new purchase order should be placed so stock arrives before you run out.
• ReplenishmentThe process of restoring inventory to target levels, either by ordering from suppliers or by moving stock from reserve storage or another warehouse into the locations where it sells or is picked.
• Safety StockExtra inventory held to cover variation in demand and supplier lead time.
• Economic Order QuantityThe order size that minimizes the combined cost of placing orders and holding inventory.