Fixed Order Period System (P-System)

In the fixed order period system, the order period is fixed, but the order quantity varies with the requirement. The quantity ordered each time depends on the current inventory level or inventory in hand and future inventory requirements. Figure 10.4 illustrates graphically the operations of this system. Here, orders are placed at equal intervals of time (T₁ = T₂ = T₃) and the quantity ordered during T₁ is different from the quantity ordered at T₂.

Figure : Fixed Order Period System

The level of inventory in this system is counted during the review period. The order size is determined on the basis of available and required inventory level. As this system is based on periodic review of inventory level, the cost involved in constant review can be saved. But the system requires higher levels of safety stocks to tide over any unexpected demand variations.

Both the fixed order quantity system and the fixed order period system have their strengths and weaknesses. In general, operations managers adopt a combination of these systems in maintaining their inventory. For instance, firms make use of reorder levels to trigger orders (like in the case of the fixed order quantity system) and do not order for the same quantity of material every time (like in the fixed order period system). The decisions on the quantity of materials are taken based on various costs associated with the inventory.            

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