Replenishment policies periodic review

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. 

Weekly demand for Legos at a Walmart store is normally distributed, with a mean of 2,500 boxes and a standard deviation of 500. The replenishment lead time is two weeks, and the store manager has decided to review inventory every four weeks. Assuming a periodic-review replenishment policy, evalnate the safety inventory that the store should carry to provide a CSL of 90 percent. Evaluate the OUL for such a policy. 

Periodic review replenishment policies require more safety inventory than continuous review policies for the same lead time and level of product availability. 

We now discuss the relationship between safety inventory and the CSL and fr. In this section, we restrict our attention to the continuous review policy. The periodic review policy is discussed in detail in Section 12.6. The continuous review policy consists of a lot size Q ordered when the inventory on hand declines to the ROP. Assume that weekly demand is normally distributed, with mean D and standard deviation o-d. Assume replenishment lead time of L weeks. 

In periodic review policies, inventory levels are reviewed after a fixed period of time T and an order is placed such that the level of current inventory plus the replenishment lot size equals a prespecified level called the order-up-to level (OUL). The review interval is the time T between successive orders. Observe that the size of each order may vary, depending on the demand experienced between successive orders and the resulting inventory at the time of ordering. Periodic review policies are simpler for retailers to implement because they do not require that the retailer have the capability of monitoring inventory continuously. Suppliers may also prefer them because they result in replenishment orders placed at regular intervals. 

Let us consider the store manager at Walmart who is responsible for designing a replenishment policy for Lego building blocks. He wants to analyze the impact on safety inventory if he decides to use a periodic review policy. Demand for Legos is normally distributed and independent from one week to the next. We assume the following inputs ... 

Identify factors that influence the required level of safety inventory. Safety inventory is influenced by demand uncertainty, replenishment lead times, lead time variability, and desired product availability. As any one of them increases, the required safety inventory also increases. The required safety inventory is also influenced by the inventory policy implemented. Continuous review policies require less safety inventory than periodic review policies. 

Weekly demand for gaming consoles at Liverpool, a Mexican department store chain, is normally distrihnted with a mean of 1,000 and a standard deviation of 400. The replenishment lead time from the suppher is four weeks. Liverpool is targeting a CSL of 95 percent and uses a periodic review policy under which it reorders consoles every eight weeks. What is the average order size How much safety inventory of consoles should Liverpool carry What should its order up to level be How much safety inventory would be required if Liverpool switched to a continuous review policy ... 

The task force identified that plant capacities allowed any reasonable order to be produced and delivered in five days. The replenishment lead time was thus five days. The DCs ordered using a periodic review policy with a reorder interval of six days. The holding cost incurred was 0.15 per unit per day whether the unit was in transit or in storage. All DCs carried safety inventories to ensure a CSL of 95 percent. 

We consider the safety inventory requirements given that Amazon follows a continuous review policy to manage tablet inventory. Amazon experiences a stockout of product if demand during the lead time exceeds the ROP— that is, the quantity on hand when Amazon places a replenishment order. Thus, we need to identify the distribution of customer demand during the lead time. Given that both lead time and periodic demand are uncertain, demand during the lead time is normally distributed with a mean of and a standard deviation ai, where... 

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