What do we usually set in a continuous review policy?

Question

BlackTom AI · Accepted Answer

In a continuous review policy, the system continuously monitors inventory and places a replenishment order whenever the inventory position drops to or below a specified level. This approach focuses on two key control parameters that trigger and size orders: the order quantity and the reorder point.
Option A discusses the order up-to level and the frequency of inspection, which are characteristic of a periodic review system, not a continuous one. The up-to level is used in periodic reviews to set the target inventory after each review period, while frequency of inspection pertains to how often reviews occur.
Option B correctly identifies the fundamental controls of a continuous review policy: the order quantity determines how much to order, and the reorder point determines the trigger when to place that order.
Option C mentions only the demand rate; while demand rate is important for planning, it does not alone define the replenishment controls in a continuous review policy.
Option D references lead time and demand uncertainty; these factors influence safety stock and service levels but do not specify the primary decision variables (order quantity and reorder point) that define a continuous review policy.
Therefore, option B is the statement that aligns with how continuous review policies are set up, whereas the others describe different aspects or systems of inventory management.

What do we usually set in a continuous review policy?

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