How to Calculate Minimum Inventory Levels With Examples

This video shows how to use the GetPivotData function, and there are written instructions below the video. The easiest way to stay in stock is to optimize your purchase order process, so that you always get your POs in at the ideal time. But the problem is that manual forecasts are time-consuming and prone to human error. Plus, by the time you gather and input the most recent data, it’s likely already outdated.

In this example, your minimum inventory level would be 2,800 shirts. Once you have these numbers, you’re ready to calculate https://turbo-tax.org/stimulus-checks/ your inventory levels. Meanwhile, holding too much inventory requires a hefty up-front capital investment.

How to Calculate Minimum Inventory Levels (With Examples)

InFlow Cloud has a Reorder Stock window, which identifies which products need reordering, and creates new purchase orders with just one click. Safety stock is similar to a reorder point, but it’s a surplus quantity to ensure you don’t run completely out of stock if there are delays. Applying the same formula as the previous examples, we have a reorder point of 1345 pieces. The following method assumes a normal distribution of demand (also called the King’s method). The normal distribution is a probability distribution symmetric to the mean. The further data is from the mean, the lower the probability of occurrence is.

We’ll keep things simple by calculating based on two weeks of extra demand (14 days). This two-week estimate is based on what we’ve seen from other small businesses. If you’re dealing with a product that has a shelf life, you should consider changing safety stock levels to days rather than weeks. By directly using the demand standard variation formula in Excel, we get a demand standard deviation of 141.4 pieces per month.

MIN IF Formula

Advanced Number Field adds support for the min() and the max() formula, which can be used in Number Field calculations. It returns the lowest or the highest value from a list of merge tags. If you’re overwhelmed by the idea of tracking all these metrics manually, it’s high time to invest in an inventory management solution like SkuVault. With some data, an easy way to find the lowest and highest values for a specific item, is to use a pivot table.

• For example, this formula (for Excel 365) finds the minimum quantity for the customer selected in cell C3, and the product name in cell B6.
• Lastly, we will calculate the Order Quantity or Re-order level from the Damage Quantity and establish the Min Max Inventory Calculation in Excel utilizing the abovementioned formula.
• As you can see, calculating your minimum inventory levels is a critical part of running a successful business.
• Default daily demand used when forecast and history data is unavailable to calculate the average daily demand.
• Now you can see that the max() function is returning the maximum value.

That means having the right product in stock, shipped on time, and delivered with no issues. – This is the percentage of inventory that you want to keep on hand in order to avoid running out of stock. Plus, it automates a lot of the mundane replenishment tasks, saving time and eliminating human errors.

Reduce lead times

For instance, when your inventory levels are low, you won’t have enough inventory to fulfill all the demand that comes your way. During that stockout event, you miss out on sales and revenue if you don’t sell those products on backorder. Now that you understand the importance of having a minimum and a maximum, here is how to roughly identify these values. The “Min” is based on the safety stock and the lead time of your product. Your “Max” is defined from the “Min” + the economic quantity to order (EOQ).

If this period is two days, then perhaps the minimum levels should be set to four days of average daily usage to be conservative. TrackStock allows users to filter to those specific items that have longer lead times in order to to calculate what their minimums should be in comparison to typical items. Many businesses use the traditional way to get the how much vendor can supply item and based on that min and max inventory levels are decided. This typically happens for high inventory low-cost items where the holistic planning not used and inventory is planned using traditional approach like min max or re-order point planning. Suppose you own a clothing store and you’re trying to calculate your minimum inventory level for t-shirts. You know that on average, it takes you three days to sell a t-shirt, and your average daily demand is ten t-shirts.

The Benefits of Min/Max Inventory Management in 2023

Find centralized, trusted content and collaborate around the technologies you use most. If you already have a good understanding of Safety Stock, Reorder calculations and statistics, you can add a bit more complexity by trying those methods. Otherwise, I suggest you to stick with the methods presented above.

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• “Inventory levels” refers to the amount of stock available throughout your distribution network.
• This figure will tell you how much stock you should always have on hand in order to meet customer demand.
• Learn all about trends in the inventory management industry from experts in the field.
• Customers have been able to reduce inventory levels up to 73% with optimization.

And that means they’re more likely to come back and purchase from you again and again. As such, your maximum inventory levels should be calculated before you place a purchase order (PO) to prevent over-ordering. Minimum inventory levels are the lowest amount of inventory you should have for each SKU. Anything below this threshold means you might stock out and fail to meet customer demand that comes your way. The sweet spot, then, is the point between too much and too little inventory. There, you achieve optimal inventory levels and only carry units guaranteed to sell.

Under stock

You may need to adjust your safety stock percentage depending on the volatility of your product demand. For example, if your product demand is very volatile, you may want to keep a higher safety stock percentage in order to avoid running out of stock. As you probably noticed, calculating and maintaining optimal inventory levels is a time-consuming task. Obsolete inventory takes up space in warehouses and racks up holding costs over time.

This would give you a projected usage rate of .33 Widgets per day. Optimal inventory levels are critical for fulfilling customer demand while avoiding too much inventory. And while every DTC brand requires a unique inventory management strategy, there are some general tips for maintaining optimal inventory levels. Optimal inventory levels ensure you have constant inventory turnover. That’s because you’re constantly selling through and replenishing the stock you have in your warehouse.