The following scenario could cause inflated inventories:

• A planner is planning work and having it placed in the backlog. As materials are planned for the work, the reserved items are driving the on-hand quantity below the minimum on-hand quantity or reorder point. The system will see the need to re-order the spare part and order the difference between the maximum and minimum quantities. As the work that was planned is carried out, some materials are not used. These items are returned to the storeroom. The on-hand quantity for these items is now above the reorder point, or the minimum on-hand quantity.

• Because an order has already been placed, there is a shipment due. The quantity of the shipment is the difference between the minimum on-hand quantity and the maximum on-hand quantity. Because the on-hand quantity is no longer at the minimum on-hand level, or the reorder point, when the shipment is received, the on-hand quantity will now be over the maximum on-hand quantity.

• This scenario clearly highlights the importance for planners to be very accurate when planning material demands for work orders. In one particular case, a company, which used a centralized depot for supplying materials to five plants, had over $20 million in spare parts that were simply over-maximum.

• Understanding the relationship between maximum, minimum, reorder quantity, reserved quantities, and reorder point is critical to properly managing any spare part inventory.