Periodic inventory review system
Unlike a continuous reorder-level approach, the review date is fixed while the order quantity can vary with the inventory position and chosen target. A simple order-up-to policy considers expected demand over the review interval plus replenishment lead time and an appropriate allowance for uncertainty. Inventory position normally includes on-hand stock and outstanding orders, less relevant commitments or backorders under the stated model. Review does not mean ordering the same amount regardless of stock. The suitable interval and buffer depend on service requirements, demand variability, lead time and administration costs.
Worked example
At a review, the target inventory position is 300 units and the current position, including outstanding orders, is 240 units. A simple order-up-to policy orders 60 units, subject to the stated commitments and ordering constraints.
Common mistake
Ignoring outstanding orders or assuming periodic review means replenishing the same quantity even when inventory positions differ.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FM | Supporting | September 2026–June 2027 |