Impact of Replenishment Policies on Safety Inventory

In this section, we describe the evaluation of safety inventories for both continuous and periodic-review replenishment policies. We highlight the fact that periodic review policies require more safety inventory than continuous review policies for the same level of product availability. To simplify the discussion, we focus on the CSL as the measure of product availability. The managerial implications are the same if we use fiU rate the analysis, however, is more cumbersome. 

Given that continuous review policies were discussed in detail in Section 12.2, we reiterate only the main points here. When using a continuous review policy, a manager orders Q units when the inventory drops to the ROP. Clearly, a continuous review policy requires technology that monitors the level of available inventory. This is the case for many firms such as Wahnart and Dell, whose inventories are monitored continuously. 

Given a desired CSL, our goal is to identify the required safety inventory ss and the ROP. We assume that demand is normally distributed, with the following inputs  

The ROP represents the available inventory to meet demand during the lead time L. A stockout occurs if the demand during the lead time is larger than the ROP. If demand across periods is independent, demand during the lead time is normally distributed with the following  

Mean demand during lead time, = D X L Standard deviation of demand during lead time, ti = 

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