100%(8)8 out of 8 people found this document helpful
This preview shows page 3 - 5 out of 16 pages.
Continuous Review SystemSingle- Period Inventory SystemoEX: Finished GoodsDependent Demand Inventory – Inventory items whose demand level are tied directly to a company’s planned production of another firmoEX: Legs required to make tablesoEX: Materials and Sub-Assemblies needed to create Finished Goods11.2 Periodic Review Systems Calculating Order Quantities (Q) for Basic Periodic Review SystemsPeriodic Review System – An Inventory system that is used to manage independent demand inventory. The inventory level for an item is checked at regular intervals and restocked to some predetermined level.illustrates the use of both cycle stock and safety stockQ = R – IQ = Order QuantityR = Restocking levelI = Inventory level at the time of reviewInventory starts out full and then slowly drain down as units are pulled from itThe graph line is straight only if demand is constantInventory is replenished after some time predetermined timeand process begins again
Calculating Restocking Levels for Basic Periodic Review Systems (as demonstrated in class)Minimum Restocking Level = d(RP) + d(L)RP = Reorder period: Time between ordersL = replenishment lead time (periods)d = average demand per period The inventory level (I)for an item is checked at regular time intervals (RP) and restocked to somepredetermined “order-up-to” level (R)Inventory Position = Items on Hand + Items on OrderIf restocking order-up-to level is not set high enough the firm will experience a stock out before the next order arrivesCalculating Restocking Levels for Periodic Review Systems with Safety Stock (as demonstrated in class)Basic Periodic Review Systems assume that demand is constant and knownReal demand tends to vary from period to period “statistical distribution”The firm increases R, using Safety Stock to buffer against uncertainty in demandWith uncertainty, the firm cannot be 100% confident that inventory will always be in stockThe best a firm can do is hold safety stock designed to have inventory a portion of the time “Service Level”R = μRP+L+ zσRP+LR = Restocking order-up-to levelRP = Reorder Period (Time Between Orders)L = Replenishment Lead Timed = Average demand per PeriodμRP+L= Expected (Average) Demand during (RP + L)μRP+L= μRP+ μL= d(RP) + d(L)zσRP+L= Safety Stock to protect against UncertaintyσRP+L= Standard Deviation (variation) of Demand during (RP + L)σRP+L= σd√RP+Lσd= Standard Deviation of Demand during one Periodz = Number of Standard Deviations corresponding to a Service Level11.3 Continuous Review Systems Continuous Review System – An inventory system used to manage independent demand inventory. The inventory level for an item is constantly monitored and when the reorder point is reached, an order is releasedofor critical/expensive inventory itemsoKEY FEATURESInventory levels are monitored constantly, and a replenishment order is issued only when a pre-established reorder point has been reached