Under what circumstances does company use FIXED ORDER Method

Under what circumstances does company use FIXED ORDER Method or PERIODIC REVIEW Method for their inventory policy? Discuss.

Solution

Fixed order method and periodic review methods are very commonly known and practiced methods of inventory management. Both are totally different and are useful under different circumstances.
Let\'s discuss Periodic review Method first :
Periodic review method, as the name suggests, are the methods where review of the stock/inventory level is triggered at the end of a certain (predetermined) period, for instance, end of month.
Sole proprietors use this method to determine the replenishment required to maintain stocks to cope with the demand.
Circumstances :
1. most important thing to notice is that period review method is based on time period and suitable for businesses not dealing in high levels of inventory and
2. when the employees are few should opt for such a method.
3. Demand must be taken into account and for a business where demand is, to an extent, limited with low chances of great fluctuations, this method will work.

Fixed Order Method : as oppose to above mentioned method, this method is triggered by events not time. For instance : a certain increase in demand may suggest or may automatically result in order of replenishment stocks to maintain a certain stock levels. This method includes real time tabs on the stocks level so when the demand exceeds the expectations, replenishment can be ordered for automatically.
Circumstances :
1. where demand is quite high and unstable
2. A high level of stocks needs to be maintained and,
3. the number of employees in the business is large.