Min/Max Inventory Planning: Simple but Effective

Min/max is the replenishment method most planning teams already run, often from minimum and maximum fields kept per item and warehouse in the ERP. The method is sound. Most of its problems come from levels that were set once and never recalculated.

What Is Min/Max Inventory Planning?

Min/max is a replenishment system built on two thresholds per SKU and location:

• Minimum (min): the inventory level that triggers a reorder. When inventory position drops to or below it, you order.
• Maximum (max): the level you order up to. The order quantity is the max minus current inventory position.

Order quantity = Max − Inventory position (when inventory position ≤ Min)

Inventory position is stock on hand, plus purchase orders already placed and not yet received, minus orders committed to customers. Using shelf stock instead of inventory position is the most common way a min/max system double-orders: the units already on their way get ordered again.

Example in Practice

For example, say your min is 100 units and your max is 500 units. Inventory position drops to 95 before anyone checks, so you order 500 − 95 = 405 units. Next time it is caught at exactly 100, and you order 500 − 100 = 400 units.

The order quantity varies a little depending on where inventory position sits when the order is placed, but it always brings you back to the max.

How Min/Max Differs From Reorder Point/EOQ

The min in a min/max system is a reorder point. The two methods differ in how much they order once the threshold is reached.

Min/max order quantities are not optimised in the economic order quantity sense, but they are easy to run across thousands of SKUs. The EOQ formula covers the fixed-quantity alternative, and target inventory vs safety stock shows how the max relates to an order-up-to level.

When Min/Max Works Best

Stable, Predictable Demand

Min/max assumes next month looks like last month. If a SKU sells roughly the same amount week after week, levels set from its history stay correct for a long time. When demand moves, fixed levels produce stockouts on the way up and excess on the way down.

Low Stockout Cost

For SKUs where an occasional stockout is an inconvenience rather than a chargeback, min/max gives acceptable service with very little planning effort. Packaging, maintenance supplies and many slow-moving finished goods fit here.

Many SKUs to Manage

A team with thousands of SKU-location combinations and limited planning time can cover all of them with min/max rules. Basic coverage of every item is better than careful planning of the top sellers and none of the rest.

Supplier Ordering Constraints

Where a supplier takes orders on a fixed schedule, min/max fits a periodic review: check every item on order day and include whatever has fallen below its min.

Setting Your Min Level

The min must cover demand for as long as it takes a new order to arrive, plus a buffer for variability. It is the same calculation as a reorder point:

Min = (Average Daily Demand × Lead Time) + Safety Stock

For example:

• Average daily demand: 15 units
• Lead time: 10 days
• Safety stock: 50 units
• Min = (15 × 10) + 50 = 200 units

For example, when inventory position reaches 200 units you order. The 150 units of lead-time demand cover normal sales until the delivery lands; the 50 units of safety stock cover a spike or a late delivery.

Sizing the safety stock inside the min

Safety stock should come from the SKU's demand variability and the service level you want, not from a guess:

Safety stock = Z × σ_d × √(lead time)

σ_d is the standard deviation of daily demand, and Z is the standard normal value for the cycle service level: 1.28 for 90%, 1.65 for 95% and 2.33 for 99%. If you check stock weekly rather than daily, use the review period plus the lead time under the square root. How to calculate safety stock works through the inputs.

Setting Your Max Level

The max controls how much stock you hold and how often you order. It has to balance:

• Order frequency: a higher max means larger, less frequent orders
• Working capital: a higher max ties up more cash in inventory
• Storage capacity: you need room for a full max in each warehouse
• Supplier minimums: the gap between min and max must be at least the MOQ, rounded to case packs or pallets

A common starting point:

Max = Min + (Average Daily Demand × Desired Days of Supply)

For example:

• Min: 200 units
• Average daily demand: 15 units
• Desired days of supply per order: 30 days
• Max = 200 + (15 × 30) = 650 units

For example, an order placed at the min is about 450 units (650 − 200), which covers 30 days of demand. If the supplier's MOQ is 600 units, raise the max to at least 800 so every order clears the minimum. What is MOQ covers the trade-offs.

Adjusting Min/Max Over Time

Fixed levels drift out of date. Recalculate min and max when:

• Demand changes: seasonal shifts, growth, decline or a new retail account
• Lead times change: a new supplier, a new port or a new co-manufacturer
• You stock out often: the min is probably too low, or its safety stock is undersized
• Stock keeps piling up: the max is probably too high, or demand has fallen
• Supplier terms change: a new MOQ or case pack changes the minimum gap between the levels

Running min/max across several warehouses

Each warehouse needs its own min and max, set from the demand that warehouse serves and the lead time into that warehouse. A company-wide min split evenly across locations leaves one warehouse short while another holds excess. Decide whether a warehouse is replenished from the supplier or by transfer from a central location, because a transfer has a shorter lead time and needs a lower min. Multi-warehouse inventory management covers the network side.

Common Mistakes to Avoid

• Comparing the min with shelf stock. Use inventory position, or open purchase orders get ordered twice.
• Setting the min without the lead time. The min must cover lead-time demand plus safety stock. A min of "two weeks of stock" on a six-week lead time guarantees stockouts.
• One set of levels for every SKU. Fast and slow movers need very different levels. Group SKUs by velocity and variability, and set service levels by group.
• Ignoring the MOQ. A gap between min and max smaller than the MOQ means every order overshoots the max.
• Never recalculating. Levels set from last year's demand plan this year's inventory.

When to Move Beyond Min/Max

Fixed min/max levels have limits. Consider a forecast-driven approach when:

• Demand is seasonal or promotional. A level that is right in March is wrong in November.
• Volume is growing or a retail launch is coming. Levels set from history lag behind a step change in demand.
• Stockouts carry chargebacks. Retail SKUs on an in-full scorecard need safety stock sized to that target, not to a rule of thumb. What is fill rate explains how retailers measure it.
• Products are expensive or short-dated. Excess costs more than the effort of better planning.

Many companies keep min/max for their long tail and plan their top SKUs from a forecast. The forecast-driven version keeps the same logic, with a reorder point and an order quantity, but recalculates both as the forecast changes instead of holding them fixed.

Planster works that way. It fits a statistical forecast to each SKU's history, converts the safety stock you set in days of cover into units from that forecast, and recalculates reorder points and order quantities per SKU as the forecast and lead times change, applying MOQs and container quantities. Purchase orders are drafted for your team to approve. See reorder recommendations for how the calculation runs.