A supply clerk must answer two questions

The appropriate amount at the appropriate time

When stocks are depleted, it is usually too late to place a new order. In inventory management, a company must pay special attention to two things: the optimal time when an item must be reordered and the necessary quantity. This is the only way to prevent a shortage in advance. A company has a number of options for conducting its inventory policies.

Timing and size of the order

As part of stock replenishment, decisions are made about when and how much should be ordered in order to minimize total warehousing and order costs [1].

When?

The question about when to place an order can be answered by specifying a definite quantity and definite date. An order is made either if inventory has fallen below a defined level “s” (reorder-point system Reorder-point system ) or if a predetermined period “t” (order-cycle system Order-cycle system ) has expired [1].

How much?

The answer to the question about how much to order can also be based on two criteria. The ordered quantity is either a pre-determined order quantity Q or a variable quantity, which supplements the inventory in each case up to a certain order level S [1].
Using these decision variables, four order rules can be formulated:

Rules of inventory replenishment

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(s,Q) rule: Ordering a fixed amount when a reorder level is reached

An order is initiated if the inventory has dropped to a reorder point or a reorder level. This is referred to as the reorder point system. The quantity to be ordered is pre-determined. The reorder point is specified in such a way that demand can be met from the existing inventory during the replenishment period.
The order cycle system with constant order quantities is used when the costs of increased safety stocks turn out to be lower than the costs of permanent control. As a rule, this will be the case with C materials.

Ordering a fixed amount when a reorder level is reached

(s,S) rule: Maximum replenishment on reaching the reorder point

An order is initiated if the inventory has dropped to a reorder point or reorder level. This is called the reorder point procedure. The order point is determined in such a way that demand can be met from the existing inventory during the replenishment period. The quantity to be ordered is variable, enabling it to supplement the inventory up to a certain order level “S.”
For high-value materials, the reorder point system with variable order quantities tends to be better suited if the costs of permanent control are lower than the savings from the lower safety stocks compared with the order cycle system.

Maximum replenishment on reaching the reorder point

(t,S) rule: Maximum replenishment on reaching the reorder point

An order is initiated if the inventory has dropped to a reorder point or reorder level. This is called the reorder point procedure. The order point is determined in such a way that demand can be met from the existing inventory during the replenishment period. The quantity to be ordered is variable, enabling it to supplement the inventory up to a certain order level “S.”
For high-value materials, the reorder point system with variable order quantities tends to be better suited if the costs of permanent control are lower than the savings from the lower safety stocks compared with the order cycle system

Maximum replenishment on reaching the reorder point

(t,Q) rule: Maximum replenishment on reaching a reorder date

In this reordering system, a new order is initiated in a fixed cycle. This method of inventory replenishment is also known as the order-cycle system or order-cycle procedure. If inventories have been depleted, reorders will be placed after the order cycle is completed. The order quantity is measured so that is corresponds to demand during the order cycle and the replacement period minus residual stocks. The inventory is replenished to its fullest extent during each new delivery.
This procedure tends to be more suitable for materials with irregular consumption.