PERPETUAL SYSTEM: Inventory Management Models : A Tutorial

PERPETUAL SYSTEM

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

What is a Perpetual System?
Q and Average Inventory Level
What is the “Best” Order Size Q?

h2. What is a Perpetual System?

Inventory level is constantly monitored and a new order place when a pre-established reorder point R is met

h2. Q and Average Inventory Level

As the order quantity doubles so does average inventory (= Q/2)

h2. What is the “Best” Order Size Q?

• Inventory related costs
  • Order preparation costs / setup costs
  • Inventory carrying costs
• Shortage & customer service costs
• Other considerations
• Out of pocket or opportunity cost?

• Fixed, variable, or some mix of the two?