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Session 4 Max-Min ICS2

This document introduces the Max-Min inventory control system and its three versions: Forced Ordering, Continuous Review, and Standard. 1) The Forced Ordering version requires reviewing stock levels at the end of each fixed review period and ordering enough to bring levels up to the maximum. An emergency order is placed if stock falls below the emergency order point. 2) The Continuous Review version requires reviewing stock levels each time an item is issued. If stock reaches or falls below the minimum, an order is placed to bring it up to the maximum. 3) The Standard version reviews stock levels at the end of each review period and orders items at or below the minimum up to the maximum, with emergency

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Ronny Ivanov
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1K views

Session 4 Max-Min ICS2

This document introduces the Max-Min inventory control system and its three versions: Forced Ordering, Continuous Review, and Standard. 1) The Forced Ordering version requires reviewing stock levels at the end of each fixed review period and ordering enough to bring levels up to the maximum. An emergency order is placed if stock falls below the emergency order point. 2) The Continuous Review version requires reviewing stock levels each time an item is issued. If stock reaches or falls below the minimum, an order is placed to bring it up to the maximum. 3) The Standard version reviews stock levels at the end of each review period and orders items at or below the minimum up to the maximum, with emergency

Uploaded by

Ronny Ivanov
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Introduction to Max-Min

Inventory Control System

Supply Chain Management


Purpose of an
To determine Inventory
when Control
stock should be
System
ordered/issued
To determine how much stock should be
ordered/issued
To maintain an appropriate stock level of
all products, avoiding shortages and
oversupply.
2
Vehicle Fuel Gauge Indicators

3
Three Max-Min Inventory Control
Version

1. Forced Ordering Max-Min Inventory


Control System

2. Continuous Review Max-Min Inventory


Control System

3. Standard Version Max-Min Inventory


Control System
4
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.
5
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

6
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)

7
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
Storekeepers Decision Rule
order.
(Forced Ordering Version with Emergency Order Point)

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
8 time, place an emergency order.
Storekeepers 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.

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
9 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

10
Storekeepers 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.
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
11 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

12
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.
13
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

14
Calculating quantity to
Order Exercise 1,
Question 1- 10 minutes

15
Setting Maximum
Minimum Inventory
Control System
16
Steps in Setting Max-Min Levels

1. Determine your Lead Time


2. Set the Review Period
3. Set the Safety Stock
4. Set the Minimum Stock Level
5. Set the Maximum Stock Level
6. Set the Emergency Order Point
17
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.
18
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.

19
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.

REVIEW
Safety
Stock > 1/2 PERIOD
STOCK
LEVEL
20
Step 4 Set the Minimum
Stock Level
Forced Ordering and Continuous Review
Versions:
MINIMUM LEAD TIME SAFETY
STOCK = STOCK LEVEL + STOCK
LEVEL LEVEL

Where, when performance data are lacking, use this rule of


thumb:

SAFETY STOCK REVIEW


LEVEL PERIOD STOCK
LEVEL
21
Step 4 Set the Minimum
Stock Level (Continued)
Standard Ordering Version:

MINIMUM LEAD TIME SAFETY REVIEW


= + PERIOD
STOCK STOCK STOCK +
LEVEL STOCK LEVEL
LEVEL LEVEL

Where, when performance data are lacking, use this


rule of thumb:
SAFETY STOCK REVIEW
LEVEL PERIOD STOCK
22 LEVEL
Step 5 Set the Maximum
Stock Level
All Versions

MAXIMUM REVIEW
MINIMUM PERIOD
STOCK + STOCK
STOCK LEVEL
LEVEL LEVEL

23
Step 6 Set the Emergency
Order Point
For Forced Ordering and Standard
Versions Only:

EMERGENCY ORDER LONGEST LEAD TIME FOR


POINT EMERGENCY SHIPMENT

24
Setting max-min
exercise 2 question 2
10 minutes

25
Any questions?

Thank you!!
26

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