Department of Corrections and Rehabilitation - Operations Manual

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Chapter 2 – Fiscal Management

Article 12 – Materials Management

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22030.10.5.4 Contract Example for Calculation of Min/Max Levels

  • Example using guidelines for min/max levels for items purchased from contract:

    • Yearly demand: 72 items.

    • Order and shipping time: 60 days.

    • Operating level: 90 days.

  • Method 1

    • Step 1 – convert yearly demand into issues per day. Issues per day = 72 items (yearly demand) ÷ 365 days = .2.

    • Step 2 – calculate the minimum level. Minimum = ordering and shipping time (in days) x issues/days = 60 x .2 = 12 items (When the stock on hand is depleted to 12 items, a replenishment order is prepared).

    • Step 3 – calculate the maximum level. Maximum = operating level (in days) x issues/days = 90 x .2 = 18 items.

  • Method 2

    • Step 1 – determine the division factor. (See chart for prior example of Method 2.) Minimum = 6 (for ordering and shipping time of 60 days). Maximum = 4 (for operating level of 90 days).

    • Step 2 – calculate the minimum level. Minimum = yearly demand ÷ division factor for ordering and shipping time = 72 ÷ 6 = 12 items (When stock on hand is depleted to 12 items, a replenishment order is prepared).

    • Step 3 – calculate the maximum level. Maximum = yearly demand ÷ division factor for operating level = 72 ÷ 4 = 18 items (When a replenishment order is prepared, the quantity to order is 18 items).