Min-max inventory: formula, example and when to use it

Min-max is the simplest way to control inventory. You set a minimum and a maximum for each item. When stock falls to the minimum, you order enough to get back to the maximum. Here is how to set both numbers.

The min-max formula

Min = (average daily demand × lead time in days) + safety stock

Max = Min + order quantity

Quantity to order = Max − (on hand + on order)

The minimum is the same thing as a reorder point. The order quantity can be an economic order quantity, a supplier minimum, or a set number of weeks of demand.

A worked example

An item sells 20 units a day, the supplier takes 10 days, you hold 60 units of safety stock, and you order in lots of 200.

Step	Calculation	Result
Demand during lead time	20 × 10	200
Min	200 + 60	260
Max	260 + 200	460
Stock position today	190 on hand + 50 on order	240
Reorder?	240 is at or below 260	Yes
Quantity to order	460 − 240	220

Always use on hand plus on order. If you look only at the shelf, you will order again for stock that is already on its way.

Prefer not to build it yourself? Use the free min-max inventory calculator.

In a spreadsheet

Put daily demand in column B, lead time in C, safety stock in D, order quantity in E, on hand in F and on order in G. Then, in row 2:

Min (H2): =B2*C2+D2

Max (I2): =H2+E2

Order (J2): =IF(F2+G2<=H2,I2-(F2+G2),0)

Keep the numbers current

Min-max levels go stale as demand and lead times shift. Review them at least every quarter, and sooner for your most important items or when a supplier’s lead time changes. Our safety stock and reorder point calculators make this quicker.

Where min-max stops working

• Seasonal or trending items. A fixed minimum is wrong for part of the year.
• Erratic demand. One large order can trigger a purchase you did not need.
• Components of a product you build. Their demand comes from the production plan, so MRP fits better.
• Thousands of items. Nobody can keep that many levels current by hand.

At that point, look at inventory planning software, which recalculates the levels for you.

Frequently asked questions

What is the difference between min-max and a reorder point?

The minimum is a reorder point. Min-max adds a maximum, so the order size changes to bring stock back up to a set level.

How do you calculate maximum inventory?

Add your order quantity to the minimum. If the minimum is 260 and you order 200 at a time, the maximum is 460.

How often should min-max levels be updated?

At least quarterly, and sooner when demand or supplier lead times change.