Introduction to Max-Min Inventory Control System Supply Chain Management TITLE: max-min should be written in full, i.e. INTRODUCTION TO MAXIMUM AND MINUMUM INVENTORY CONTROL SYSTEM

Purpose of an Inventory Control System To determine when stock should be ordered/issued To determine how much stock should be ordered/issued To maintain an appropriate stock level of all products, avoiding shortages and oversupply.

Vehicle Fuel Gauge Indicators COMMENT: the slide should have title You monitor your fuel consumption from time to time You decide when to purchase more gas. By assessing your supply status of the tank , you can calculate when to refuel and how much depending on your destination (perhaps your budget). Drivers use the red warning area as a trigger of when to buy more fuel Other drivers replenish the tank on a specific day of the week regardless of the fuel level to fill it up

Three Max-Min Inventory Control Version Forced Ordering Max-Min Inventory Control System Continuous Review Max-Min Inventory Control System Standard Version Max-Min Inventory Control System

Storekeeper Decision Rule (Forced Ordering Version) Review all stock levels at the end of each Review Period. Order enough stock to bring stock levels up to Max. For example: Review all stock levels at the end of each quarter. Order enough stock to bring the stock levels up to 6 months.

Definition of Review Period The Review Period is the time scheduled for reviewing stock levels It is also time for ordering commodities, so in the above example both the review period and the order interval is quarterly Correct schedule to scheduled. Add in the above example after ‘so’

Definition of Emergency Order Point The stock level at which an emergency order should be placed to avoid a stock out whether the end of the Review Period has been reached EOP in Nigeria = 2 weeks (0.5 months) Delete Emergency order point. Create separate slide for illustration transfer ‘EOP in Nigeria = 2 weeks (0.5 months)’ to the next slide

Storekeeper’s Decision Rule (Forced Ordering Version with Emergency Order Point) Review all stock levels at the end of each Review Period. Order enough stock to bring stock levels up to Max.   If the stock level for any item falls below the Emergency Order Point before the end of the Review Period, place an emergency order. Correct Storekeeper to Storekeeper’s For example:  Review all stock levels at the end of each quarter. Order enough stock to bring the stock levels up to 6 months.  If the stock level for any item falls below 1 month at any time, place an emergency order.

Storekeeper’s Decision Rule (Continuous Review Version) Review the stock level for each item every time an issue is made. If the stock level is at or has fallen below Min, order enough stock to bring the level up to Max. Delete ‘Review the stock level each time an issue is made’ under example. Insert ‘the requirement for’ after ‘below’ For example:  Review the stock level each time an issue is made. If the stock level is at or has fallen below the requirement for 3 months, order enough to bring the level back up to 6 months.

Differences from the Forced Ordering Version In Continuous Review: There is no fixed Review Period The order is made when you reach Min The storekeeper needs to know the Min There is no Emergency Order Point

Storekeeper’s Decision Rule (Standard Version) Review all stock levels at the end of each Review Period. For products which are at or have fallen below Min, order enough stock to bring stock levels up to Max. If the stock level for any item falls below the Emergency Order Point before the end of the Review Period, place an emergency order. Insert ‘’ requirement’ after 3 months For example:  Review all stock levels at the end of each quarter. For products which are at or have fallen below 3 months’ requirement, order enough stock to bring the stock levels up to 6 months.  If the stock level for any item falls below 1 month at any time, place an emergency order.

Special Features of Standard Version Standard Version is based on both a fixed review period and the minimum stock level Compared to Forced Ordering which uses only the fixed review period, and the Continuous Review version uses the minimum stock level Underline fixed review period

Summary of Decision Rules for all three versions Forced Ordering Max-Min Version: Review all stock levels at the end of each Review Period. Order enough stock to bring stock levels up to Max. Continuous Review Max-Min Version: Review the stock level for each item every time an issue is made. If the stock level is at or has fallen below Min, order enough stock to bring the level up to Max. Standard Max-Min Version: Review all stock levels at the end of each Review Period. For products which are at or have fallen below Min, order enough stock to bring stock levels up to Max.

Formula for How Much to Order Max stock quantity – Stock on hand = order/issue quantity MSQ – SOH = QTO/I Max stock quantity = average monthly consumption x max stock level   Average monthly consumption = average of the quantities of product dispensed to users or patients in the most recent three months, as appropriate

Calculating quantity to Order Exercise 1, Question 1- 10 minutes

Setting Maximum – Minimum Inventory Control System

Steps in Setting Max-Min Levels Determine your Lead Time Set the Review Period Set the Safety Stock Set the Minimum Stock Level Set the Maximum Stock Level Set the Emergency Order Point

Step 1 – Determine Lead Time Lead Time is the time interval between ordering stock (or, in a push system, the time that the decision to send stock is made) and the time that received stock are ready for use.

Step 2 – Set the Review Period For forced ordering and standard systems, review periods are often linked to reporting periods. For a continuous review system, the trigger for ordering is whenever products reach their min stock levels so there is no review period; but a review period can be set to establish a minimum period in which orders are processed.

Step 3 – Set the Safety Stock Safety Stock is the buffer, cushion, or reserve stock kept on hand to protect against stockouts caused by delayed deliveries or markedly increased demand. It works for systems that have full supply. > Safety Stock REVIEW PERIOD STOCK LEVEL 1/2

Step 4 – Set the Minimum Stock Level Forced Ordering and Continuous Review Versions: MINIMUM STOCK LEVEL = LEAD TIME STOCK LEVEL + SAFETY STOCK LEVEL Where, when performance data are lacking, use this rule of thumb: SAFETY STOCK LEVEL  ½ REVIEW PERIOD STOCK LEVEL

Step 4 – Set the Minimum Stock Level (Continued) Standard Ordering Version: SAFETY STOCK LEVEL + LEAD TIME STOCK LEVEL = MINIMUM STOCK LEVEL REVIEW PERIOD Where, when performance data are lacking, use this rule of thumb: SAFETY STOCK LEVEL  ½ REVIEW PERIOD STOCK LEVEL

Step 5 – Set the Maximum Stock Level All Versions MAXIMUM STOCK LEVEL  MINIMUM STOCK LEVEL + REVIEW PERIOD STOCK LEVEL

Step 6 – Set the Emergency Order Point For Forced Ordering and Standard Versions Only: EMERGENCY ORDER POINT  LONGEST LEAD TIME FOR EMERGENCY SHIPMENT

Setting max-min exercise 2 question 2 – 10 minutes

Any questions? Thank you!!