PERIODIC REVIEW SYSTEM: Inventory Management Models : A Tutorial
PERIODIC REVIEW SYSTEM
The two classic systems for managing independent demand inventory are periodic review and perpetual review systems. This section focuses on the 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|
|=||260 + 40|