Cyclical ordering or Fixed period system

Fixed Period based systems (also called "cyclical systems" ) are designed so that each inventory item is reviewed and reorders are placed after a predetermined time interval (i.e. every 2 weeks, every 30 days, etc.).

Orders are placed for each item equal to the difference between current inventory level and a predetermined maximum. In cyclical systems, time between reorders is constant, but reorder quantity is variable.

Predetermined maximums are set with a consideration of order lead time.
It involves scheduled periodic reviews of the Stock level of all inventory items as follows :

  • Fixed Schedules (calendar) for reviewing a group of items is drawn

  • Fixed Desired inventory level (DIL) of each item or group of items is calculated. In case stock level of an item is insufficient to sustain the production operation until the next scheduled review , order is placed to replenish the stock to DIL

  • Maintenance of perpetual inventory records

Procedure : First , all the inventory items are grouped in certain feasible categories or classes of items such as Pipes & Pipe fittings, Raw materials, Chemicals & Reagents, Oil and Lubricants etc.

Now, a calendar is drawn for all the classes so that depending upon the number of classes each class is reviewed for replenishment during certain specified time frame.
Besides, the DIL or MaxL for each group or individual item is fixed.

Depending upon the Review period , a class of items is reviewed w.r.t. its Stock position, Production plan, any dues in quantity against any previous order.

The DIL or MaxL= (RP+LT+SS) X D

During review and based on the Lead time , if the present stock of an item or group of items is not expected to last the next production plan then action for replenishment is taken by raising the material procurement requisition.

The Order quantity is decided by (MaxL- (Present stock + dues in))

Suitability of the system :
  • For materials whose purchases can be planned months in advance

  • For materials which exhibit an irregular or seasonal usage pattern

  • For items with volatile prices

  • For group of items purchased from and shipped together by one supplier

Disadvantages of the system :
  • Compels periodic reviews of all items
  • Not effective to combat stock out situations
  • Actual ordering quantities may deviate from optimum quantity
  • Tends to peak the purchasing work load around the review dates
  • There is no automatic trigger for reorder before the review time in the event of increased usage, which generally leads to increased inventory levels as a means of stock out prevention
  • System does not permit effective use of economic order quantities.