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Fixed-Time Period Inventory Model Explained

This document describes the fixed-time period or fixed-order interval inventory model. Under this model, orders are placed at fixed intervals (T) and the order quantity (q) varies each time. The order quantity is calculated as the expected demand during the order interval and lead time plus a safety stock based on demand variability, minus current inventory levels. The goal is to meet a desired service level, which is defined as the probability of having an item available when needed.

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Eunjina Mo
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22 views1 page

Fixed-Time Period Inventory Model Explained

This document describes the fixed-time period or fixed-order interval inventory model. Under this model, orders are placed at fixed intervals (T) and the order quantity (q) varies each time. The order quantity is calculated as the expected demand during the order interval and lead time plus a safety stock based on demand variability, minus current inventory levels. The goal is to meet a desired service level, which is defined as the probability of having an item available when needed.

Uploaded by

Eunjina Mo
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

FIXED-TIME PERIOD OR FIXED-ORDER INTERVAL MODEL

 When to order?
 Order interval coincides with review period;
 Order is placed when the review period (T) arrives.

 How much to order?


 q = variable; the order quantity varies each time an order is placed.

Order quantity = expected demand during the order interval and lead time +
safety stock – inventory status

q  d T  L  SS  I

SS  z d T  L

q  d T  L   z d T  L  I

Where:

q = number of units to be ordered for the next period, units


d = average daily demand, units/day
T = order interval or review period, days
L = lead time, days
z = number of standard deviations corresponding to a desired service level
 d = standard deviation of daily demand, units
I = inventory status, units
I  on hand  on order  backorder

Desired service level = the probability that the item is available; i.e., not
stockout, when needed.

e.g., A desired service level of, say, 95%, means that the inventory
manager desires that the inventory item is available 95% of the time that it
is demanded, which is equivalent to a 5% chance of stockout.

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