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SCRC Article Library: PERIODIC REVIEW SYSTEM: Inventory Management Models : A Tutorial

PERIODIC REVIEW SYSTEM: Inventory Management Models : A Tutorial

Published on: Jan, 28, 2011

by: Cecil Bozarth, PhD


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?

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


  • 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


= 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


  • 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.



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

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