we choose to have money ininventory instead of productiveactivities that generate ROIadditional related purchasesthe more we spend on inventory, themore we MUST spend on storageshelving, racks, floor space, buildingspace, warehouses, material handling,inventory management, insurance,taxes, heating, cooling, workers,managementadditional non-productive activitymore inventory means moremovement of materials, repackingof materials, reconfiguration ofstorage locationsopportunity for mistakesmore inventory sitting for longerperiods of time present moreopportunity for damage, errors,rework, theft, obsolescence.
independent demand inventoryinventory items whose demandlevels are beyond a company'scomplete control. Ex: finishedgoodsdependent demand inventoryinventory items whose demandlevels are tied directly to acompany's planned production ofanother item. Ex: materials andsub-assemblies needed to createfinished goodsPeriodic Review systems-When demand rate is constant and known -system that is used to manage independent demandinventory (finished goods) -inventory level for an item is checked at regular timeintervals and restocked to some predetermined level -Inventory position: items on hand + items on order -If restocking level is not set high enough, the firm willexperience a stockout before the next order arrives.Continuous review systemsan inventory system used to manageindependent demand inventorywhere the inventory level for an itemis constantly monitored and when apredetermined reorder point isreached, an order is released.Features of Continuous reviewsystem-inventory levels are monitoredconstantly and a replenishmentorder is issued only when apreestablished reorder point hasbeen reached.
How much do you order for acontinuous review system?Continuous Review Systemsassumptions for calculations.