Min-Max Inventory Calculator

Setting it out

A min-max system holds two numbers per product. The minimum is the reorder point, lead time demand plus safety stock. The maximum is the level stock is topped back up to, normally the minimum plus the economic order quantity.

When stock falls to or below the minimum, order enough to reach the maximum. It is the simplest replenishment rule that handles both when and how much, which is why it is the default in most inventory software.

A concrete case

Minimum 154 units, 120 of lead time demand plus 34 of safety stock. Maximum 434, which is the minimum plus the 280-unit EOQ.

Stock falls to 148 during a busy week. The order quantity is 434 − 148 = 286 units, slightly above the EOQ because the trigger was crossed rather than hit exactly.

That overshoot is a feature. It restores the position rather than ordering a fixed amount from wherever stock happened to be, which is what keeps the system self-correcting after an unusually strong or weak period.

What the number hides

The two numbers are only as good as the assumptions behind them, and they are usually set once and never revisited. A min-max pair from two years ago applied to a product whose sales have doubled produces a reorder point that fires far too late and a maximum that never covers the cycle.

The maximum also has to sit above the supplier minimum order quantity or the system produces an order it cannot place. Where the MOQ exceeds the max minus the min, the max needs raising and the extra stock accepted.

Where to go from here

Recalculate both numbers on a schedule, quarterly for most products, more often for anything growing or seasonal. The maintenance is what makes the system work, and it is the part almost universally skipped.

Then review the exceptions rather than the rule. Products ordering more often than expected have a min that is too low; products sitting near the max for months have a max that is too high, and both show up clearly in the order history.

Min-max against continuous review

Min-max is a continuous review system in principle, the minimum can be crossed at any moment, but it is usually operated on a periodic check, which introduces the review interval into the exposure period whether or not anyone accounts for it.

Where stock is checked weekly, the minimum has to cover lead time plus a week rather than lead time alone, and a min set without that allowance will stock out roughly as often as the review interval divided by the cycle length.

The practical fix is either to genuinely automate the trigger, so it fires the moment stock crosses the line, or to build the review interval into the minimum explicitly. Both work; what does not work is a minimum calculated for continuous review and operated on a Monday morning report, which is the most common arrangement in businesses that have outgrown their processes without noticing.