The Min/Max inventory method defines two stock levels: first a replenishment threshold, referred as the “min”, and second, a replenishment target, referred as the “max”. Yet, despite its popularity, this method is not suitable for most modern supply chains.
Many in the supply chain industry are bound by the capabilities of their ERP system. Often, the Min/Max approach is hard coded into the software, making it an approach that many companies rely upon. The method was developed as a visual way of managing stock levels, with the primary benefit being its simplicity and the fact that it can be implemented into almost any system with ease. Pretty much every supply chain management system uses a variation of the Min/Max approach.
However, as one of the earliest automated replenishment methods to be used in inventory management software, this approach obviously has its limitations and doesn’t take into account the added complexities of most modern supply chains, nor does it leverage the technology that is now available to us.
In this episode of LokadTV, we explain why the method is geared towards simplicity rather than correctness and how, ultimately, through taking this approach you are on a path destined to failure: it doesn’t account for MOQs, it works very poorly with multi-item constraints, and so on and so forth.
We try to understand the first steps that a Supply Chain manager should take to improve their approach and debate why, even if a company has a Min/Max approach that is currently working, they should still take significant steps to move away from this method. We present some of the alternative methods that businesses can use to make their supply chains more efficient and to correctly track the movements of their SKUs.
00:31 What do Min/Max approaches actually entail?
01:45 In addition to being simplistic, what other benefits does the Min/Max approach have?
02:30 What are its limitations?
04:38 What are the real world problems that come from using this approach?
07:05 If it’s such a “poisonous” approach, why is it incorporated into so many ERP’s?
09:20 A lot of companies are bound by Min/Max, what are the other available options?
12:00 Is reverse-engineering an approach to recommend?
14:20 What are the key differences between a Lokad and a Min/Max approach?
17:05 Why should a company move away from a Min/Max approach if its working well enough?
18:59 For a Supply Chain Manager, what would be the first steps to move away from a Min/Max approach?