How to maintain minimum-maximum inventory level?

A fundamental reorder method has been introduced for various ERPs and other forms of inventory management applications within the Min / Max inventory ordering system. The worth of ‘min’ reflects a stock amount that causes a reorder and therefore the value of ‘max’ represents the new stock level after reordering. The difference between the Max and therefore the Min is usually viewed because the EOQ (Economic Order Quantity).

This is the simplest internal control approach. You simply draw two lines that are for max and a minimal inventory quantity. If your inventory crosses the minimum line for a particular product, it's time to reorder. But, quite the complete limit, you can't request additional purchase. This method is simplistic and may have both positive and negative impact. If data points aren't properly analysed to be used, obsolescence, strategic need, then there are often issues like either shortages or overstocked items.

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The ability to raised predict consumer demand, decrease product cycle times and ensure a high probability of sales by carrying common parts needed by several customers, are required to enhance inventory turnover rates.

Below are a number of the simplest practices that require to be followed in ascertain the minimum and maximum inventory levels:

1. Evaluation of Cycle Times and Seasonal Demand Models Take the time to separate your inventory into its commonest parts. Assess the cycle times for every product and therefore the inventory turnover rates.
2. Sales forecasts and manufacturer provided time interval accuracy the trick is to start out your sales forecasts with those quantities that are bound to sell your product. Stock replenishment should take under consideration the lead times, or turnaround times, from suppliers.
3. Managing quarterly inventory volumes if your company faces unpredictable quarterly sales and is uncertain on the month those items got to be purchased, take the time to vary your inventory (minimum level) accordingly and calculate your inventory requirements by the quarter.
4. Establish the grading system for the merchandise to make a decision on the time that your company has got to hold a listing, create a product grading system supported the recognition of the products.

When deciding the minimum stock amount, the subsequent considerations are to be taken into account:

1. Lead time

A purchasing firm needs a particular amount time to finish the order and therefore the supplier / seller also needs time to hold out the order. This is often often termed as lead-time since this is the time taken to process the order then to execute. So as to satisfy production requirements, it's essential to stay some inventory during this period.

2. Rate of consumption

The consumption rate are going to be determined supported the quantity of products / parts consumed over a selected period of your time and also supported future plans be it seasonal or for expansion / higher production.

3. Nature of materials

The kind of products and nature of materials also determine whether or not minimum order quality must be maintained. If the materials are specifically ordered only against customer orders, then for those minimum level needn't be maintained.

4. Re-ordering Level

The level of reordering is about between the minimum and therefore the highest level. The usage rate, the amount of days needed to replenish the stocks, and therefore the maximum quantity of materials required on any day are taken under consideration, when setting the reordering standard.

Minimum stock level = Reorder level – {mean use x average lead time}

The maximum level of inventory would depend on the following factors:

1. Capital availability to buy the materials in the business.
2. Maximum material requirements required at any time.
3. The availability of space for in warehouse for storage of the goods.
4. The cost of maintenance costs of the stores.
5. The capacity for price swings for different materials.
6. The potential for technology changes will also impact the maximum level.

Maximum level of stock = level of ordering + quantity of ordering – (minimum level of consumption x minimum time of ordering)

Significant advantages:-

1. Know real-time inventory or surplus numbers.
2. For each inventory object, set custom stock limits and controls to get deeper insights.
3. Inventory levels at specific locations.
4. Display your dashboard or notifications for Min / Max information for quicker action.
5. Batch product intuitive rearrangement.

Priyanka shankar, market research analyst also a business writer. Love to write about process industries, excess inventory, excess stock dealing etc..