continuousreview

Continuous review is an inventory management approach in which stock levels are monitored continuously, and an order is placed as soon as the inventory position falls to a predetermined reorder point. This policy is often denoted as an (s, Q) policy, where s is the reorder point and Q is the fixed order quantity. In continuous review, the inventory position equals on-hand inventory plus on-order inventory minus backorders. When the inventory position reaches s, an order for Q units is issued to replenish stock.

The reorder point s is chosen to achieve a target service level and typically incorporates lead time demand and safety stock. Lead time demand is the expected amount of demand during the supplier lead time, while safety stock buffers against demand and supply variability. A common expression for s is s = μL + zσL, where μL is the average demand during lead time, σL is the standard deviation of demand during lead time, and z corresponds to the desired service level. In many implementations, the order quantity Q is aligned with economic order quantity principles, though it can be adjusted based on cost considerations and stockout risks.

Advantages of continuous review include tighter control over inventory, reduced stockouts for critical items, and quicker response to changes in demand or supply. The approach requires reliable real-time monitoring and information systems and can incur higher ordering or administrative costs compared with periodic review policies. It is commonly used for high-value or time-sensitive items and in environments with variable demand or lead times.