Minimum and maximum stock: What are they?

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Stock management in a retail business is one of the most important processes to take into account. In this sense, the variables minimum stock and maximum stock play an essential role in the proper flow of buying and selling.

Surely you don’t want to leave a customer unsatisfied because you don’t have the product they are looking for. Therefore, daily stock control is a very important task that you should not overlook, in order to anticipate the demand.

In this article we tell you what minimum and maximum stock are, and why these concepts are so important for your business.

What is minimum stock?

Minimum stock, also known as safety stock, is the minimum amount of units that a company has available to meet demand at any given time.

Experts recommend requesting new orders from suppliers before our warehouse reaches this minimum stock. Although this is feasible to meet a ‘regular’ demand, there are many occasions when it is not enough.

To calculate the minimum stock necessary in your business it is necessary to analyze the demand over a long period of time and define how it behaves in the different months of the year and even at specific times such as Christmas or summer.

What is the maximum stock?

The maximum stock refers to the maximum amount of items that your company can keep in the warehouse.

At first glance, having a maximum stock may seem like a great advantage. However,having your warehouse at full capacity, without it being related to actual sales, can cause numerous problems.

You can also read  What is stock?

Deterioration of goods, breakages and losses due to overcrowding are just some of the difficulties you face.

In this way, the losses for your company will be significant because you will have paid for a quantity of goods that you don’t actually sell. Not only will you not make the expected profit, but you won’t even get your investment back.

But don’t get me wrong, having a maximum stock is not a bad thing. As long as it is in accordance with the real storage capacity that your company has, and also depending on the characteristics of the product and its shelf life.

Factors to consider when calculating the maximum and minimum stocks in your inventory

Throughout the article we have mentioned some of the variables to consider in this regard. However, in order to have a clearer idea, we will now tell you which are those elements that you should take into account.

Storage costs: electricity, rent, staff, etc.

Demand for items at different times. You will notice that there are periods in which it is necessary to have a maximum stock of products available (in the sales or in times of high demand such as Christmas).

Contracts and conditions with suppliers.

Among other aspects that you should not forget when calculating the maximum and minimum stock in your warehouse. We hope we have helped you!

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