Comparison of Periodic Review Policy and Continuous Review Policy for the Automotive Industry Inventory System

Abstract

Industries which apply make to stock production systems depends on inventories to respond of fluctuating demand. The accuracy of determining consumer demand becomes very important. Incorrect of inventory policy causes overstock or stock out. This research was conducted on companies engaged in the automotive industry. This study aims to obtain optimal inventory system policy. The optimal inventory system is capable of generating order quantities to support the fulfilment of consumer demand by low inventory cost and order costs. Continuous Review Policy and Periodic Review Policy were conducted to find of inventory system policy which is able to handle of overstock or stock out with dynamic probabilistic demand characteristics. Continuous Review Policy uses 3 variations of lead time demand (M=25, M=15, and M=8) to obtain the probability density function. The probability density function influences the quantity of order and reorder point. The Periodic Review Policy provides of optimal ordering intervals. The result proves that Continuous Review Policy is able to provide a lower total inventory cost than Periodic Review Policy on this automotive industry by 53,89%.