Inventory management is used to make decisions about (1) when to order new stock and (2) how much stock to order.
Periodic and continuous inventory systems address these two basic decisions in different ways.
In a periodic inventory system, the amount of stock on hand is assessed periodically (i.e., every week or month or some other fixed-time interval). The amount to order is then determined based on the amount on hand and expected demand. Thus, all the orders are placed in one batch per period.
In a continuous inventory system, the inventory is always known (a record is kept at all times). When the amount of stock on hand drops below a set amount (called the reorder point) an order is placed for a pre-determined quantity which is calculated to keep inventory costs low. Thus, an order can be placed at any time.
To summarize, with respect to decisions (1) and (2):
A periodic inventory system places orders (1) at fixed intervals for a (2) quantity calculated based on the amount currently on hand.
A continuous inventory system places orders (1) when the reorder point is reached for a (2) pre-determined, fixed quantity.
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