Page 216 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 11: Physical Distribution and Inventory Management

Fixed Quantity Replenishment System Notes

Here, the order is placed when the inventory has fallen below a definite level. The quantity to be
ordered is predetermined. The reorder point is specified in such a way that demand can be met
from the existing inventory during the replenishment period.
The order cycle system with constant order quantities is used when the costs of increased safety
stocks turn out to be lower than the costs of permanent control.

Figure 11.1: Ordering a Fixed Amount when a
Reorder Level is Reached

Advantages

 Less buffer stock required for protection against stockouts
 Fewer stockouts when demand is unusually high
 No need to determine the order quantity for each replenishment

 Lower inventory carrying cost as compared to fixed period replenishment system.
Fixed Period Replenishment System

In this case, the order is placed on a predefined period “t”. The replenishment quantity in such
situations is often determined such as to replenish inventory to a given maximum level.

Figure 11.2: Ordering at a Fixed Time

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