Sunday, August 17, 2008

Inventory controlling policies

There are basic categories of policies for controlling inventories: fixed order quantity policies and fixed
time period policies.
In the first, as the name implies, the order quantity is always the same but the time between orders will vary depending on demand and the current inventory levels. Specifically, inventory levels are continuously monitored and an order is placed whenever the inventory level drops below a predetermined reorder point. For this reason, this type of policy is also called a continuous review policy.
In fixed time period policies, the time between orders is constant but the quantity ordered each time
varies with demand and the current level of inventory. Because ordering follows a fixed cycle, these policies
are also called periodic-review policies. We will focus on periodic-review policies in this note, but the major
insights and analyses are very similar to those for continuous review policies.

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