This policy only releases replenishment orders whenever a new demand comes in. It can be represented by (s, S) where s=-1 and S=0. The policy itself does not result in holding any type of stock to meet a target service level. Therefore, whenever a new demand comes in, it is always backordered. The resulting service level is always 0%. A Make-to-Order inventory policy is recommended for extremely slow items whose demand statistics are not enough to optimize the reorder point to meet a target service level.

For the replenishment of fast moving items, a batch size (Q) is often identified and available for most inventory management systems. Such a policy makes sense when economies of scale in the supply system are high. For example, when each individual unit is not very valuable, fixed order costs are expected to dominate holding and backorder costs. Therefore, a reorder point reorder quantity (R,Q) policy is recommended for smooth demand class. That this policy is recommended with a continuous review period in order to improve the reaction time. It is associated with the optimization of two parameters: reorder point (R) and reorder quantity (Q). Safety Stock Optimization assumes that Q is known and available when optimizing R.

• Whenever the inventory position (IP) declines to or below the reorder point (R), replenishment orders of Q are placed until IP is brought back to or above the reorder point.
• Inventory position (IP) is reviewed at the Review Period (i.e. Continuous, Daily, Hourly, etc.) specified in the Inventory Policies table.
• The policy parameters for the (R,Q) policy are determined as follows:
  • Minimum Replenishment Qty (Q) = Max(Minimum Order Quantity or Minimum Replenishment Quantity, Replenishment Frequency or Production Frequency × daily demand mean).

A reorder point (R) is determined to meet the given target service level.

Parameter	Parameter Name	Calculated As
Policy Parameter 1	Reorder Point (R)	R = Lead Time Demand Mean + Safety Stock
Policy Parameter 2	Reorder Qty (Q)	Q = Minimum Replenishment Qty Min Replenshment Qty = Max( Minimum Order Quantity, Replenishment Frequency or Production Frequency * Daily Demand Mean)

It makes sense to employ a basestock policy when economies of scale in the supply system are negligible relative to other factors. For example, when each individual unit is very valuable, holding and backorder costs dominate any fixed order costs. Likewise, a basestock policy is recommended for a slow-moving product (one with a low demand rate) where the economics of the situation rule out large batch sizes. Also, in some cases there is a natural quantity unit for both demand supply (for example, a truckload), and in terms of that unit it makes sense to set Q=1. Basestock policy is associated with the optimization of a single parameter. This policy is recommended with a continuous review period in order to improve the reaction time.

Basestock is a continuous review (R,Q) policy with a Minimum Replenishment Qty (Q) equal to 1.

• The inventory position (IP) is assumed to be reviewed continuously.
• In this policy, each demand causes a replenishment order to be placed immediately.
• Another name for basestock policy is (S-1, S) or (s, s+1) policy.
• Policy parameters are determined as follows:
  • Minimum Replenishment Qty Q=1.
  • A reorder point is determined to meet the target service level.
• The basestock level = R + 1

The reorder point/order up to (s,S) policy is useful in dealing with items with highly variable demand cases. The demand fluctuations are handled by the order up to point (S) while “when to order” decisions are managed by the reorder point (s). The (s,S) policy is recommended for erratic and slow-highly variable demand. Note that this policy is recommended with a continuous review in order to improve the reaction time. The s,S Policy is associated with the optimization of two parameters: the reorder point (s) and the order up to level (S). Safety Stock Optimization assumes that the batch size (i.e. S-s) is known and available when s is optimized.

• Whenever the inventory position (IP) declines to or below the reorder point (s), the replenishment order of “S – IP” is placed to bring IP back to the order up to point (S).
• The order up to level (S) is always greater than reorder point (s) (i.e. S>s).
• The inventory position (IP) is reviewed at the review period specified in the input.
• The policy parameters are determined as follows:
  • Minimum Replenishment Qty (Q) is used as an input.
  • A reorder point (s) is determined to meet the given target service level.
  • The order up to level (S) = s + Q

s = Lead Time Demand Mean + Safety Stock

S = s + Minimum Replenishment Qty
Minimum Replenishment Qty = Max(Minimum Order Quantity, Replenishment Frequency or Production Frequency * Daily Demand Mean))

Note that the Minimum Replenishment Qty (Q) is used only for calculating S. The actual replenishment order does not have to be Q.

Parameter	Parameter Name	Calculated As
Policy Parameter 1	Reorder Point (s)	s = Lead Time Demand Mean + Safety Stock
Policy Parameter 2	Order Up To Level (S)	S = s + Min Replenishment Qty Min Replenshment Qty = Max( Minimum Order Quantity, Replenishment Frequency or Production Frequency * Daily Demand Mean))

The periodic review order up to level (T, S) policy is relatively simple and reflects real world practices to a great extent. This policy is preferred in an intermittent demand context since it facilitates the consolidation of shipments from suppliers and it is associated with the optimization of one single parameter (the order up to level). Safety Stock Optimization uses this policy to handle the Lumpy demand class, the most difficult of the classes. The periodic policy provides the convenience of regular ordering days for the stock list and for the supplier who can plan efficient routing of the delivery vehicles.

• Inventory position (IP) is reviewed every T periods.
• If the inventory position (IP) is observed to be below the reorder up to point (S), then the (T, S) inventory policy releases the orders of S minus IP to bring IP back to the reorder up to point (S).
• When IP is less than S at the end of review period (T), the order of S minus IP is placed to make IP=S.
• Policy parameters are determined as follows:
  • Review period (T) is an input.
  • An order up to level is calculated to meet the given target service level.

Note that this policy is equivalent to the basestock policy if IP is reviewed continuously.