A methodology for comparing the variable costs of the continuous and periodic review models.

Abstract

The optimal use of the continuous review model requires that an inventory system be examined after the receipt of every demand. Sometimes a delay can be encountered in the timing of these reviews due to several uncontrollable factors. As the length of these delays increases, a point is reached where it is better to switch the inventory system to a periodic review model. This thesis develops a methodology by which this point can be found for varying cost factors and demand levels. Using simulation, an example series of curves is presented that demonstrates the optimal point to switch inventory models for selected lead times. If delays are expected in the time between reviews , using the methodology offered in this paper will provide the manager an informational criterion for deciding what inventory model to use in a stocking system.