Periodic Inventory System

Periodic Review System Calculator

EOQ:  

Established EOQ (if you need to find this, visit EOQ Calculator)

μ:  

Average item daily demand

z_r:  

z value for confidence level (see below)

σ:  

Standard deviation for daily demand

LT:  

Lead time

    

Solution

RP =  

Your RP is your review period, the number of days from one review to the next

TIL =  

TIL is your target inventory level

SS =  

SS is your safety stock based on your confidence, or desired service level

 

Periodic Inventory System Formulas

The formulae for a periodic review system are as follows:

RP = EOQ / μ

TIL = SS + μ(RP + LT)

SS = z_rσ√(RP + LT)

where,

RP is your periodic review period, EOQ is your economic order quantity and μ is your average demand for the item

TIL is your target inventory level, which is established by adding your SS (safety stock) to your average daily demand multiplied by your RP and your LT (lead time)

In this formula, your SS (safety stock) is a bit more tricky because you have an established service level, which is determined by setting a z-score value (see below), you multiply your service level by the standard deviation for your daily demand. This figure is then multiplied by the square root of your RP and LT value.

z = 1.645 when service level (confidence level) is established at 90%
z = 1.96 when service level is established at 95%
z = 2.58 when service level is established at 99%

 

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What is a Period Inventory System?

A periodic inventory system is generally applied when there are several items that need to be ordered at the same time, in an effort to consoliate purchasing efforts.