7 Periodic Review (Safety Stock) Model

Question 1

What are the three decision models for inventory mgt (one has two subcategories)

Answer 1

1. economic order quantity
2. safety stocks (continuous and periodic review)
3. newsvendor

Question 2

Why hold inventory?

Answer 2

1. balance inventory holding cost and fixed order costs
2. satisfy demand during lead time
3. protect against uncertainty

Question 3

Continuous review

Answer 3

Inventory continuously reviewed
- place order when reach reorder point

Question 4

When is continuous review most appropriate?

Answer 4

When inventory can be continuously reviewed

Question 5

Periodic review policy

Answer 5

Inventory reviewed at REGULAR intervals
- appropriate quantity ordered after each review

Question 6

When is periodic review policy most appropriate?

Answer 6

When it’s inconvenient to frequently review inventory

Question 7

Two cases of periodic review policy (how often you review inventory

Answer 7

1. short intervals (daily)
2. longer intervals (weekly/monthly)

Question 8

What do s and S mean in if you have short review intervals

Answer 8

Both are inventory levels
- if inventory falls below s, order enough to raise inventory to S

Question 9

If you have longer review intervals, you will order enough to raise the inventory position to what level?

Answer 9

Base-stock level

Question 10

Target level (OUL)

Answer 10

The inventory level we want to maintain

Question 11

Exposure period

Answer 11

Exposure period = T + L

Question 12

T

Answer 12

Interval length of reviewing inventory

Question 13

How do we calculate the OUL (target)

Answer 13

OUL (target) = 𝝁 (𝑳 + 𝑻) + 𝒔𝒔

Question 14

How do we calculate the safety stock in the periodic review model

Answer 14

𝑠𝑠 = 𝑧𝜎 sqrt (𝐿 + 𝑇)

Question 15

Difference cycle inventory and pipeline inventory

Answer 15

Cycle inventory: inventory you have atm (in store)
Pipeline inventory: inventory you ordered but haven’t received yet

Question 16

Main difference continuous review and periodic review policy

Answer 16

In continuous review you always order the same amount (EOQ), when you hit R
In periodic review, you always after same amount of time, and you order the quantity to reach the base stock level again

Question 17

How to reduce average inventory levels in periodic review model (order up to level OUT)

Answer 17

A) shorter review time
B) contact supplier for shorter lead time

Question 18

When are safety stocks negative (what csl)

Answer 18

When CSL is below 50%

Question 19

Difference fixed quantity and fixed period

Answer 19

Fixed quantity: order when reach ROP, quantity ordered constant
Fixed period: review and order at constant time interval, quantity ordered varies (whatever is missing to reach target inventory level)