There are three main types of max-min inventory control systems:
- Forced-ordering: In this system, all stock levels are reviewed, and orders are placed at the end of a fixed review period, regardless of the stock on hand. This is the system used in Ethiopia.
- Continuous review: Orders are placed whenever the stock level for an item reaches the minimum. This requires constant monitoring of stock levels.
- Standard: This system combines elements of forced-ordering and continuous review. Stock levels are reviewed at the end of each review period, and orders are placed for items at or below the minimum.
The formula for calculating the minimum stock level for forced-ordering and continuous review systems is:
- Minimum stock level = Lead time stock level + Safety stock level.
In contrast, the formula for standard systems includes an additional factor for the review period:
- Minimum stock level = Lead time stock level + Safety stock level + Review period stock level
The maximum stock level is calculated by adding the minimum stock level to the review period stock level:
- Maximum stock level ≥ Minimum stock level + Review period stock level.