When I review inventory holding levels with people and I ask ‘why is the maximum setting so high?’, almost invariably the reply is, ‘because that item is critical to our operation’. However, this response, while well meaning, highlights one of he major problems (in my opinion) of spare parts inventory management: the misconception that setting a high maximum holding level for an inventory item is a risk minimization strategy. This idea is just plain wrong because stock out risk is a function of the minimum holding level and setting a high max level does not reduce your stock out risk.
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