SUBHOJIT DUTTA

PRESENTATION ON

p and q system

Presented by: SUBHOJIT DUTTA

(PG-11-42)

SUBMITTED TO PROF R.K.SINGAL

FOR THE SUBJECT:-

SUPPLY CHAIN MANAGEMENT

SUBHOJIT DUTTA

Economic Order Quantity (EOQ)/Q SYSTEM

• Developed in 1915 by F.W. Harris• Answers the question ‘How much do I order?’• Used for independent demand items.• Objective is to find order quantity (Q) that minimizes

the total cost (TC) of managing inventory.• Must be calculated separately for each SKU.• Widely used.(i.e. works well in a lot of situations, even

when its assumptions don’t hold exactly).

SUBHOJIT DUTTA

Continuous Review System

• Relax assumption of constant demand. Demand is assumed to be random.• Check inventory position each time there is a demand (i.e continuously).• If inventory position drops below the reorder point, place an order for the EOQ.• Also called fixed-order-quantity or Q system (the fixed order size is EOQ).

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A Continuous Review (Q) System

R = Reorder PointQ = Order QuantityL = Lead time

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Periodic Review (P) System

• Periodic review (P) system: A system in which an item’s inventory position is reviewed periodically rather than continuously.– Sometimes called a fixed interval reorder system or a

periodic reorder system.– A new order is always placed at the end of each

review, and the time between orders is fixed at P.– Demand is a variable, so total demand between

reviews varies.– The lot size, Q, may change from one order to the

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A Water Tank Analogy for P system

Supply RateInventory Level

Demand Rate

Inventory LevelPERIODIC MONITORING

PERIODIC MONITORING

PERIODIC MONITORING

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Periodic Review System (P)

• Fixed interval reorder system or periodic reorder system

Four of the original EOQ assumptions maintained No constraints are placed on lot size Holding and ordering costs Independent demand Lead times are certain

Order is placed to bring the inventory position up to the target inventory level, T, when the predetermined time, P, has elapsed

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A Periodic Review (P) System

SUBHOJIT DUTTA

Periodic Review System (1)• Instead of reviewing continuously, we review the

inventory position at fixed intervals.(For example, the bread truck visits the grocery store on the same days every week).

• Inventory brought up to a ‘target’ level• Also known as “P system”, “Fixed-order-interval

system” or “Fixed-order-period system”

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Periodic Review System• Has a target inventory rather than a reorder point.• Does not have EOQ since quantity varies according to demand.• The order interval is fixed, not the order quantity.

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Comparison of Q and P Systems

P Systems Convenient to administer Orders for multiple items from the same supplier may be combined Inventory Position (IP) only required at review

Systems in which inventory records are always current are called Perpetual Inventory Systems

Review frequencies can be tailored to each item Possible quantity discounts Lower, less-expensive safety stocks

Q Systems

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Inventory systems

• Q-systemorder QUANTITY is constantlower order limit signal size for the stock replenishment

• P-systemorder PERIOD is constantupper order limit missing quantity up to limit is ordered

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SUBHOJIT DUTTA

Using P and Q Systems in Practice

• P may be easier to use since levels are reviewed less often.

• P requires more safety stock since may only order at fixed points.

• P is more likely to run out since cannot respond to increases in demand immediately

• Either may be more costly: P in safety stock, Q in monitoring cost.

SUBHOJIT DUTTA

SOURCES• Project report• Journal: Business research• Forrester Research 2011 • KPMG-FICCI Report• http://www.indiainbusiness.nic.in• www.google.co.in• www.google.com/inventory/management• www.wikipedia.com

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FINALLY

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