Min/max inventory levels: how the method works, and its blind spot
Min/max inventory levels are two fixed numbers held against each SKU: a minimum stock level that triggers a purchase order, and a maximum level you refill back up to. This page explains how the method works, shows it on one SKU, and names the blind spot that makes it dangerous on a store whose sales keep moving.
What min/max inventory levels are
Min/max inventory levels are two fixed numbers held against each SKU: a minimum stock level that triggers a purchase order, and a maximum level that caps how much you bring in. When stock falls to or below the min, you order enough to bring it back up to the max, and that difference is your order quantity.
The method came off the warehouse floor, where a bin card and a pencil had to be enough. It survives because it asks nothing of you at the moment of ordering. The thinking happens once, when you set the two numbers. After that, every order is one subtraction.
Worked through on one SKU
Take a candle SKU. You set min 40 units and max 160. Monday's count says 38 on hand, which is at or below the min, so the SKU is due. The order quantity is 160 minus 38, so 122 units go on the purchase order.
That is the whole method. The min is the number doing the real work: it is meant to hold enough stock to cover sales for as long as your supplier takes to deliver, plus a cushion for a bad week. The max does a different job. It stops cash and shelf space disappearing into one line because somebody over-ordered to hit a carton price.
The blind spot: both numbers are frozen
Min/max sets the numbers once and demand does not hold still.
You set min 40 when the candle sold one unit a day. Forty units was forty days of cover, and your supplier took twenty one days, so you had room. Six months later the candle sells four a day. The min has not moved. Forty units is now ten days of cover against a twenty one day lead time, so by the time the order lands you have been out of stock for eleven days, on your best seller, in the middle of its best season.
It fails in the other direction too. A SKU that has slowed keeps its old min and its old max, so you keep refilling to a level that covers months of sales you no longer make. Cash sits on a shelf as candle wax.
Two smaller problems sit underneath that:
- A min is a quantity, not a time. Forty units tells you nothing until you know what you sell per day and how long the supplier takes.
- The numbers only get reviewed when somebody remembers. Nobody has review the min on 400 SKUs in their calendar, and the SKUs that most need a new min are the ones changing fastest.
Min/max is not wrong. It is a reorder point with the arithmetic frozen at the moment you typed it in.
Min/max levels against a calculated reorder point
| Question | Min/max levels | Calculated reorder point |
|---|---|---|
| What triggers an order | Stock touches a fixed minimum you typed in | Stock crosses a point worked out from recent sales and lead time |
| How much to order | Enough to refill to the maximum | An order-up-to level or a quantity derived from the same inputs |
| When sales climb | Nothing changes until you edit the number | The point rises as the sales velocity window rises |
| When the supplier slips | Nothing changes until you edit the number | Change the lead time and the point moves with it |
| What you maintain | Two numbers per SKU, reviewed by hand | A lead time per SKU and a velocity window |
| How it reads | A quantity sitting on a shelf | A date by which the order has to be placed |
Related terms
Min/max only makes sense next to the numbers it compresses. Each of these is covered on its own page in this glossary.
- Reorder point. The calculated version of your min: how much stock you need on hand to survive the supplier wait. Walked through on a real SKU.
- Sales velocity. Units sold per day, and why a 7, 14 or 30 day window gives you three different answers for the same SKU.
- Lead time. The supplier wait in days. The one input no app can read for you, and the one that quietly moves most often.
- Safety stock. The cushion sitting on top of lead time demand, and how merchants size it without pretending to forecast.
- Days of inventory on hand. The time version of a stock level, which is the unit a min should really be expressed in.
- Stockout. What running out actually costs a small store, which is why the min matters more than the max.
If you want the whole decision rather than one term, the guide on when to reorder turns velocity and lead time into an order date.
Questions
How do you set min and max inventory levels?
The min should cover what you sell during the supplier wait, plus a cushion: daily sales multiplied by lead time in days, plus safety stock. The max is usually the min plus whatever order size is sensible for you, taking account of carton or pallet quantities, your cash, and your shelf space. Both are judgement calls, and both go out of date the moment sales or lead times move.
Is a minimum stock level the same as a reorder point?
They sit in the same place in the process, but they are made differently. A min is a number you type in and leave. A reorder point is the same idea recalculated from your recent sales velocity and your current lead time, so it moves when the store moves. If you keep your min genuinely up to date, you have a reorder point maintained by hand.
What is the maximum level actually for?
It caps your exposure on one line. Without a max, the person raising the purchase order fills in whatever quantity looks tidy, and slow SKUs quietly absorb cash. The max also makes the order quantity automatic: max minus what you have on hand.
How often should min and max be reviewed?
Often enough that the min still reflects the SKU's current sales rate and the supplier's current turnaround. On a store with a few dozen SKUs a monthly pass is realistic. Past a couple of hundred SKUs, reviewing by hand stops happening, which is the usual reason a store runs out on its best seller while every other number looks fine.
Can I run min/max in a spreadsheet?
Yes, and plenty of merchants do. Two columns per SKU, a stock count pasted in, and a filter for rows at or below the min. The cost is not the spreadsheet, it is that the stock count is only as fresh as your last paste, and the min is only as good as your last review.
Should I use min/max or days of cover?
Days of cover is easier to read and harder to leave stale, because it is expressed in time rather than units. Min/max is easier to hand to someone raising purchase orders, because it hands them a quantity. Many stores keep min/max for the ordering paperwork and watch days of cover to decide when the min needs changing.