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Poole College of Management 
Supply Chain Resource Cooperative

PERPETUAL SYSTEM: Inventory Management Models : A Tutorial

January 28, 2011

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?