About Dave at InventoryOps.com Expertise I can answer questions relating to inventory management, inventory accuracy,warehouse operations, material handling, storage equipment.
Experience 15 years experience working warehouseing, distribution, manufacturing
Expert: Dave at InventoryOps.com Date: 4/29/2002 Subject: Minimum Levels
Question How accurate can the setting of min's and max's be when there is no forecast available and what is the best formula to set these ?
Thanks, John.
Answer You cannot set min/max without some type of a forecast. Even if you do not have a formal forecast process, you still require some logic to estimate future usage. If someone is setting min/max by looking at recent item history and taking a guess or just taking a guess without looking at any data, that is still a "forecast".
That being said, the effective of min/max will be highly dependant on the accuracy of the forecast. There are several calculations to use to determine these levels. Min is essentially a "reorder point". Reorder point is calculated as the sum of lead time usage plus safety stock. Max is calculated as Min plus Order Quantity. I have written a couple of articles that detail calculations of Safety Stock and Economic Order Quantity. Use the following links to access them:
