Department of Corrections and Rehabilitation - Operations Manual

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Chapter 2 – Fiscal Management

Article 12 – Materials Management

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22030.10.5.3 Purchase Order Example for Calculation of Min/Max Levels

  • Example using guidelines for MINMinimum/MAX levels for items purchased by POs up to $10,000 (When a replenishment order is prepared, the quantity ordered is 90 items):

  • Method 1

    • Step 1 – convert yearly demand into issues per day. Issues per day =180 items (yearly demand) – 365 days = .5.

    • Step 2 – calculate the minimum level. Minimum = ordering and shipping time (in days) x issues/days = 90 x .5 = 45 items.

      When the stock on hand is depleted to 45 items, a replenishment order is prepared.

    • Step 3 – calculate the maximum level. Maximum = operating level (in days) x issues/days = 180 x .5 = 90 items.

  • When MINMinimum/MAX levels may also be calculated with the yearly demand divided by factors based upon ordering and shipping time (for the minimum level) and operating level (for maximum level). The division factor for the minimum level is the approximate number of days per year (360) divided by the ordering and shipping time in days. The division factor for the maximum level is an assumption of the number of orders per year (i.e., the approximate number of days per year – 360 – divided by the operating level in days). A chart that provides the division factor for different ordering and shipping times or operating levels follows:

    Ordering and Shipping Time or Operating Level (in Days)Division Factor
    3651
    1802
    1203
    904
    755
    606
    458
    3012

  • Method 2

    • Step 1 – determine the division factors. Minimum = 4 (for ordering and shipping time of 90 days). Maximum = 2 (for operating level of 180 days).

    • Step 2 – calculate the minimum level. Minimum = yearly demand ÷ division factor for ordering and shipping time = 180 ÷ 4 = 45 items (When stock on hand is depleted to 45 items, a replenishment order is prepared).

    • Step 3 – calculate the maximum level. Maximum = yearly demand division factor for operating level = 180 ÷ 2 = 90 items.

      Note: When a replenishment order is prepared, the quantity ordered is 90 items. The quantity to order is the maximum supply level.