Reorder Point and Min-Max: Which Inventory Policy Fits Which Item?

Every inventory policy answers two questions: when to order and how much to order. Three policies are common: reorder point, min-max, and periodic review. The choice between them is usually made out of habit or software capability, not from the characteristics of the item.

Under a reorder-point policy, inventory is tracked continuously and when inventory position falls to the reorder point, a fixed-size order (for example the EOQ) is placed. The reorder point equals expected demand over lead time plus safety stock. It suits important items with fairly stable demand, but it requires accurate, real-time inventory transactions; without them orders fire late or early.

Under min-max, when stock falls to the minimum (Min) we order enough to bring it back to the maximum (Max), so order size varies with consumption. It is simple, understandable to warehouse staff, and suits consumables and spare parts. Its weakness is that Min and Max are often set once and never revisited, so as consumption shifts they create either excess or shortage.

Under periodic review, stock is checked at fixed intervals (say weekly) and ordered up to a target level. It has an advantage when several items come from one supplier and orders can be consolidated, or when transport runs on a fixed schedule. Its cost is higher safety stock, because uncertainty must be covered across the whole review interval plus lead time.

A few simple questions guide the choice: is inventory recorded accurately in real time? Do several items share a supplier or freight route? Is the item class A and worth the extra effort? Yes to the first and third usually points to a reorder point with a calculated order size; yes to the second points to periodic review; and low-value, fast-moving class C items run well on simple min-max.

A common mistake is choosing one policy for the entire portfolio. The result is either high cost from tightly controlling unimportant items or weak control of critical ones. Another mistake is setting the reorder point without lead-time variability; if a supplier sometimes takes twice the usual lead time, a reorder point calculated from the average guarantees shortages.

A practical starting point: classify items with ABC-XYZ, write a default policy for each class, and define a separate policy only for exceptions. Then review the parameters (reorder point, Min and Max) every quarter with fresh data. The real value of an inventory policy lies in keeping its parameters current, not in the name of the policy.