Operations Management: An Integrated Approach, 5th Edition

PERIODIC REVIEW SYSTEM

With the periodic review system, you determine the quantity of an item your company has on hand at specified, fixed-time intervals (such as every Friday or the last day of every month). You place an order for an amount (Q) equal to the target inventory level (TI), minus the quantity on hand (OH), similar to the min-max system. The difference is that with the periodic review system, the time between orders is constant (such as every hour, every day, every week, or every month) with varying quantities ordered. The min-max system varies both the time between orders and the quantities ordered.

Target inventory level (TI)

Used in determining order quantity in the periodic review system. Target inventory less on-hand inventory equals order quantity.

An advantage of the periodic review system is that inventory is counted only at specific time intervals. You do not need to monitor the inventory level between review periods. This system also makes sense when you order several different items from a supplier. For example, if your company buys 10 different items from the same supplier, you can place one order for all 10 items rather than 10 individual orders, one for each item.

Potential disadvantages include the varying replenishment levels. First, since you must have sufficient space to store the largest possible order quantity, often you will have excess space when ...