Establishing upper and lower thresholds for stock levels is a fundamental inventory management technique. This method involves setting a minimum quantity that triggers a reorder and a maximum quantity that should not be exceeded. For example, a business might set a minimum of 50 units and a maximum of 200 units for a particular product. When stock dips to 50, a replenishment order is placed, aiming to bring the inventory back up to, but not beyond, 200.
Implementing this strategy offers several advantages. It helps prevent stockouts, ensuring customer demand can be met consistently. Concurrently, it avoids overstocking, minimizing storage costs and the risk of obsolescence. Historically, this approach has been a cornerstone of inventory control, evolving from manual tracking systems to sophisticated software solutions that automate the process and incorporate forecasting algorithms.