Review Period In Inventory Management

In the realm of inventory management, the review period is a critical concept that plays a significant role in maintaining the right balance between supply and demand. The review period, also known as the review cycle or reorder cycle, refers to the time interval between successive reviews of inventory levels to determine if replenishment orders need to be placed. This period is an essential component of various inventory control strategies and methodologies aimed at optimizing stock levels and minimizing costs.

Importance of the Review Period

The review period is vital because it directly impacts inventory replenishment decisions. It dictates when a business should assess its current inventory levels and decide whether to place an order to restock depleted items. The duration of the review period is influenced by several factors, including:

1. Demand Patterns: If demand for a product is relatively stable and predictable, longer review periods might be suitable. Conversely, volatile demand might require shorter review periods to ensure timely response to fluctuations.

2. Lead Time: The time it takes for an order to be placed and the inventory to be restocked, known as lead time, affects the review period. Longer lead times might necessitate shorter review periods to ensure stock availability.

3. Service Level Goals: Businesses often set specific service level targets, which indicate the desired probability of not experiencing stockouts. Review periods are adjusted to align with these service level objectives.

4. Cost Factors: Costs associated with holding inventory (holding costs) and costs associated with ordering (ordering costs) influence the determination of an optimal review period.

Two Basic Approaches: Continuous vs. Periodic Review

Two fundamental approaches to inventory review are the continuous review and the periodic review methods.

1. Continuous Review: In this approach, also known as the Continuous Review System or the Two-Bin System, inventory levels are continuously monitored. When the inventory level of an item reaches a predetermined reorder point, a replenishment order is placed. The review period is not fixed, as it depends on the rate of consumption and the lead time for replenishment.

2. Periodic Review: With the periodic review approach, inventory levels are assessed at specific intervals, which define the review period. At the end of each review period, a comprehensive evaluation of all items is conducted, and orders are placed for products that have fallen below a certain threshold. This method simplifies the process by aligning multiple items' review periods.

Determining the Review Period

The determination of the review period in an inventory planning system depends on several factors, including the nature of the business, product characteristics, demand patterns, and operational considerations.

Here are some common approaches to determining the review period in an inventory planning system:

Historical analysis: One way to determine the review period is by analyzing historical data on inventory levels, demand patterns, and lead times. By examining the data over different time intervals (e.g., weeks, months, quarters), businesses can identify recurring patterns, seasonality, and fluctuations in demand. The review period can be set to align with these patterns or to capture a representative sample of historical data.

Sales or demand cycle: The review period can be aligned with the sales or demand cycle of a product. For example, if a product experiences significant demand fluctuations on a weekly basis, the review period could be set to one week to ensure that inventory is replenished frequently enough to meet customer demand.

Lead time considerations: The review period can be determined based on the lead time required to replenish inventory. If the lead time is relatively short, the review period may be shorter to enable more frequent monitoring and replenishment. Conversely, if the lead time is longer, the review period may be longer to minimize frequent monitoring and ordering.

Operational efficiency: The review period may also be influenced by operational considerations such as order processing time, supplier capabilities, and production schedules. For example, if order processing and lead times are long, a shorter review period may be necessary to ensure timely replenishment.

Service level objectives: The desired service level or customer satisfaction goals can also impact the determination of the review period. If high service levels are important, a shorter review period may be preferred to minimize stockouts and ensure prompt order fulfillment.

It's important to note that the review period is not a fixed value and can be adjusted over time based on ongoing evaluation of inventory performance and changing business dynamics. Regular monitoring and analysis of inventory data, demand patterns, and operational factors can help fine-tune the review period to optimize inventory planning and management

Setting Review Period

You can set the review period in Versa as the system level or at the product level. Set the system level setting from Setup, Feature Settings, Inventory management. At the product level, this is set as part of the re-order point setting for an inventoried product.