Continuous Review System Single Period Inventory System o EX Finished Goods

# Continuous review system single period inventory

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Continuous Review System Single- Period Inventory System o EX: Finished Goods Dependent Demand Inventory – Inventory items whose demand level are tied directly to a company’s planned production of another firm o EX: Legs required to make tables o EX: Materials and Sub-Assemblies needed to create Finished Goods 11.2 Periodic Review Systems Calculating Order Quantities (Q) for Basic Periodic Review Systems Periodic 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 stock Q = R – I Q = Order Quantity R = Restocking level I = Inventory level at the time of review Inventory starts out full and then slowly drain down as units are pulled from it The graph line is straight only if demand is constant Inventory is replenished after some time predetermined time and 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 orders L = 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 some predetermined “order-up-to” level (R) Inventory Position = Items on Hand + Items on Order If restocking order-up-to level is not set high enough the firm will experience a stock out before the next order arrives Calculating Restocking Levels for Periodic Review Systems with Safety Stock (as demonstrated in class) Basic Periodic Review Systems assume that demand is constant and known Real demand tends to vary from period to period “statistical distribution” The firm increases R , using Safety Stock to buffer against uncertainty in demand With uncertainty, the firm cannot be 100% confident that inventory will always be in stock The best a firm can do is hold safety stock designed to have inventory a portion of the time “Service Level” R = μ RP + L + RP + L R = Restocking order-up-to level RP = Reorder Period (Time Between Orders) L = Replenishment Lead Time d = Average demand per Period μ RP + L = Expected (Average) Demand during (RP + L) μ RP + L = μ RP + μ L = d(RP) + d(L) RP + L = Safety Stock to protect against Uncertainty σ RP + L = Standard Deviation (variation) of Demand during (RP + L) σ RP + L = σ d RP + L σ d = Standard Deviation of Demand during one Period z = Number of Standard Deviations corresponding to a Service Level 11.3 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 released o for critical/expensive inventory items o KEY FEATURES Inventory levels are monitored constantly, and a replenishment order is issued only when a pre-established reorder point has been reached