# PERIODIC REVIEW SYSTEM: Inventory Management Models : A Tutorial

Published on: Jan, 28, 2011

## PERIODICREVIEWSYSTEM

The two classic systems for managing independent demand inventory are periodic review and perpetual review systems. This section focuses on the Periodic Review System.

## What is a Periodic Review System?

• Classic independent inventory system
• Inventory levels start at some restocking level, R
• At regular time intervals (ex. – 3 days, two weeks, etc.), the inventory level is reviewed. This new inventory level is called I.
• Some amount, Q, is added to bring the inventory level back up to R:

Q = R – I

## EXAMPLE 1

• A retailer reviews the inventory for a certain product every 3 days. The restocking level is 20.
• If the inventory level is low, new items are available in the storeroom and are immediately brought out:

### Determining the restocking level

Where:

 = average demand during the reorder period plus thereplenishment lead time (if there is a delay getting new products in). SS = safety stock. This is a “cushion” of inventory held to mitigate the uncertainties of forecasts and lead times. Higher safety stock levels increase the likelihood that goods are available, but also drive up inventory levels and costs

## EXAMPLE 2

• A pharmacy sells an over-the-counter drug, Vaxidene.
• Every 10 days, the vendor comes by to check the inventory levels and order more of the drug.
• It takes about 3 more days to get the new order in.
• Demand per day is about 20 bottles, but can vary.
• The pharmacy would like to keep a safety stock of about 30 bottles to protect against stockouts, just in case demand levels or lead times are greater than expected.

### Solution

GRAPHICS

 = 13 days * (20 bottles) = 260 bottles SS = 40 bottles = 260 + 40 = 300 bottles