Maximum and Minimum Inventory Guide
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ScribdTranslationsMaximum and Minimum Inventory Guide
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ScribdTranslationsINVENTORY MANAGER
Module No.4 Inventory Management
Activity No. 2
After having read and analyzed guide No. 2 of module 4, and inquiring into other
sources, answer the following questions:
1-What does the maximum and minimum inventory method consist of?
The maximum and minimum inventory method is an inventory management technique that
helps determine when to place reorder requests. It is based on establishing two
thresholds: a maximum inventory level and a minimum inventory level. When the
stocks fall below the minimum level (reorder point), an order is placed for
restocking to bring the inventory back to the maximum level.
2- According to their own criteria, what is the importance of establishing maximums and minimums?
of inventory:
The importance of setting maximums and minimums for inventory lies in optimization.
from inventory management and ensuring that the company has sufficient stock
to meet market demand without incurring unnecessary costs.
Activity no. 2. Solve the following cases about maximum and minimum:
a) The Diverse Supermarket wants to know what the maximum and minimum are
inventory of rich milks, as well as the reorder point and order quantity.
The following data is available for them: Their supplier delivers the orders.
weekly, that is every 7 days, it is known that the day that sells the most sells more
the product is 250 boxes and when it sells less it is 90 boxes, having a
average daily sales of 150 boxes. Note: At the time of having the data, in
There is a stock of 500 boxes in the warehouse.
Maximum Level (M): 250 boxes (on the day of maximum sales).
Minimum Level (m): 90 boxes (on the day of minimum sales).
Average Daily Sales (D): 150 boxes.
Initial Existence (I): 500 boxes.
Reorder Point (ROP) = (Delivery Days x D) + m Where:
7 days (since the supplier delivers weekly).
D = 150 boxes (average daily sale).
m = 90 boxes (minimum sales day).
ROP = (7 x 150) + 90 = 1,140 boxes.
The order quantity is calculated to replenish the inventory
from the reorder point to the maximum level. Q = (M - I) = (250 - 500) = 250 boxes.
So, when the inventory reaches 1,140 boxes, an order of 250 must be made.
Boxes to bring the stock back to 500 boxes.
b) The Aristy Filpo stationery has established a minimum stock of reams of paper 8
1/2x11 of 490 boxes and a maximum stock of 1540 boxes. The average daily sale is
of 90 boxes and the supplier takes 5 days to deliver the order. There is in stock
250 boxes available. Note: You are required to calculate the reorder point and the quantity.
of order.
Maximum Level (M): 1,540 boxes.
Minimum Level (m): 490 boxes.
Average Daily Sales (D): 90 boxes.
5 days.
Initial Existence (I): 250 boxes.
Reorder Point (ROP) = (LEAD x D) + m ROP = (5 x 90) + 490 = 940 boxes.
Order Quantity (Q): The order quantity is calculated to replenish inventory.
from the reorder point to the maximum level. Q = (M - I) = (1,540 - 250) = 1,290
boxes.
When the inventory reaches 940 boxes, an order of 1,290 boxes must be placed to
bring the inventory back to 1,540 boxes.
Let's see an example. Suppose that your company consumes 100 units of raw materials per day to produce
a finished product. The average delivery time for raw materials is 3 days and, as the supplier has
I have had some shipping issues lately, you maintain a safety stock of 400 units.
The average consumption during the manufacturing cycle (also known as manufacturing cycle demand) is,
Therefore, from 100 units/day x 3 days = 300 units. The calculation for the reorder point is 300 + 400 = 700
units. Please note that this is not about the size of the batch, but the point at which it should be activated.
replenishment. In your replenishment system, a ROP should be set at 700 units for this item.