Some inventory planning methods require sophisticated software, statistical expertise, and continuous tuning. Min/max planning isn't one of them. It's straightforward: set a minimum level that triggers reorders and a maximum level that caps how much you hold. When inventory hits the min, order up to the max.
This simplicity is both its strength and its limitation. Min/max works remarkably well for certain situations and fails badly in others. Here's how to know when to use it and how to make it work.
What Is Min/Max Inventory Planning?
Min/max is an inventory replenishment system based on two thresholds:
- Minimum (Min): The inventory level that triggers a reorder. When stock drops to or below this level, it's time to buy more.
- Maximum (Max): The inventory level you order up to. Your order quantity is Max minus current inventory.
The formula is simple:
Order Quantity = Max − Current Inventory (when Current Inventory ≤ Min)
Example in Practice
Say your min is 100 units and your max is 500 units. When inventory drops to 100 (or below), you order. If current inventory is 95, you order 500 − 95 = 405 units.
Next time inventory hits 100 and current stock is exactly 100, you order 500 − 100 = 400 units.
The order quantity varies slightly based on where inventory is when you notice, but it always brings you back up to max.
How Min/Max Differs From Reorder Point/EOQ
Traditional reorder point systems have a fixed reorder quantity (often calculated via EOQ). When you hit the reorder point, you always order the same amount.
Min/max has a variable order quantity. You order whatever's needed to reach max. This means:
- If you're a bit below min, you order more (to get back to max)
- If you're exactly at min, you order max − min
- Order quantities aren't optimized in the EOQ sense, but they're practical
The simplicity of min/max makes it easier to manage manually, which is why it remains popular despite more sophisticated alternatives.
When Min/Max Works Best
Stable, Predictable Demand
Min/max assumes demand is relatively consistent. If you sell roughly the same amount week after week, the levels you set will make sense over time. High variability breaks min/max—you'll constantly be either overstocked or stocking out.
Low Stockout Cost
For non-critical items where running out occasionally isn't catastrophic, min/max provides good enough performance without the complexity of more precise systems. Office supplies, some raw materials, and slow-moving products are good candidates.
Many SKUs to Manage
If you have thousands of SKUs and limited planning resources, min/max lets you cover everything with simple rules. It's better to have basic min/max coverage on all items than perfect planning on 20% and chaos on 80%.
Supplier Ordering Constraints
Some suppliers want regular orders rather than optimized ones. If you're ordering anyway on a set schedule, min/max tells you what to include. It integrates well with periodic review systems where you check inventory weekly and order whatever's below min.
Setting Your Min Level
Your minimum should ensure you don't run out during the time it takes to receive a new order. The calculation looks similar to a reorder point:
Min = (Average Daily Demand × Lead Time) + Safety Stock
Example:
- Average daily demand: 15 units
- Lead time: 10 days
- Safety stock: 50 units (buffer for variability)
- Min = (15 × 10) + 50 = 200 units
When inventory hits 200 units, you order. The safety stock provides buffer if demand spikes or the order is delayed.
Setting Your Max Level
Your maximum controls how much inventory you hold. It should balance:
- Order frequency: Higher max means larger, less frequent orders
- Holding costs: Higher max means more capital tied up in inventory
- Storage capacity: You need room for max-level inventory
- Supplier minimums: Max should at least accommodate minimum order quantities
A common starting point:
Max = Min + (Average Daily Demand × Desired Days of Supply)
Example:
- Min: 200 units
- Average daily demand: 15 units
- Desired days of supply: 30 days
- Max = 200 + (15 × 30) = 650 units
This means when you reorder, you're typically ordering about 450 units (650 max − 200 min), enough for 30 days.
Adjusting Min/Max Over Time
Set it and forget it doesn't work. Review and adjust min/max levels when:
- Demand changes: Seasonal shifts, growth, or decline all require updated levels
- Lead times change: New supplier? New shipping route? Update accordingly
- You're frequently stocking out: Min is probably too low
- You're frequently overstocked: Max is probably too high
- Carrying costs change: Higher storage costs might warrant lower max
Quarterly reviews work for most products. High-velocity or seasonal items need more frequent attention.
Common Mistakes to Avoid
- Setting min too low. This causes frequent stockouts. When in doubt, add more buffer.
- Setting max too high. Capital gets tied up in slow-moving inventory that gathers dust. Balance coverage against holding costs.
- Using the same levels for all products. A fast-moving product and a slow-moving product need very different min/max levels. Group products by velocity.
- Ignoring lead time in min calculation. The most common error—min must cover expected demand during lead time plus safety stock.
- Not reviewing regularly. Demand and supply conditions change. Stale min/max levels create problems.
When to Move Beyond Min/Max
Min/max has limits. Consider more sophisticated approaches when:
- Demand is highly variable or seasonal. Static levels can't handle 3x demand swings.
- Products are expensive. The cost of suboptimal inventory justifies the effort of better planning.
- Stockouts are very costly. High-stakes products need probability-based safety stock calculations, not rules of thumb.
- You have good data and tools. If you can run statistical forecasting, use it.
Many businesses use min/max for their long tail of slower items while applying more rigorous methods to their top products.
Key Takeaways
- Min/max is a simple inventory system: order when you hit min, order up to max
- It works best for stable demand, non-critical items, and when managing many SKUs
- Set min based on lead time demand plus safety stock
- Set max based on min plus your desired order cycle
- Review and adjust levels at least quarterly
Frequently Asked Questions
What is min/max inventory planning?
Min/max is an inventory replenishment system where you set a minimum level that triggers reorders and a maximum level that caps inventory. When stock drops to the min, you order enough to bring inventory back up to the max. Order quantity = Max − Current Inventory.
How do I calculate min and max inventory levels?
For min: (Average Daily Demand × Lead Time) + Safety Stock. This ensures you have enough to last through the reorder period. For max: Min + (Average Daily Demand × Desired Days of Supply). This determines how much inventory you want to hold after receiving an order.
What's the difference between min/max and reorder point?
Both use a threshold to trigger orders, but reorder point systems typically use fixed order quantities (often calculated via EOQ). Min/max uses variable order quantities—you always order up to the max, regardless of exactly where inventory is. Min/max is simpler to manage but less optimized.
How often should I review min/max levels?
Review quarterly at minimum. More frequent reviews make sense for seasonal products, fast-growing/declining items, or products experiencing supply chain changes. Signs you need a review: frequent stockouts, consistently excess inventory, or significant demand pattern changes.
When should I use min/max vs. more advanced methods?
Use min/max for stable-demand products, lower-value items, or when you're managing many SKUs with limited planning resources. Move to more advanced methods for high-value products, volatile demand, or where stockout costs are high. Many businesses use min/max for their long tail and sophisticated methods for top items.