Continuous Review System
A continuous review system is an inventory control method where the inventory position of a SKU is tracked after every transaction and a replenishment order is triggered whenever it falls to or below a reorder point (ROP). Also called a reorder point system, fixed order quantity system, or Q system, it uses a fixed order quantity with variable order timing.
On the shop floor, continuous review is used for critical raw materials, WIP-constraining components, MRO spares, and line-side consumables where stockouts can halt production. Every issue from stores, bin scan, or confirmed consumption event updates the inventory position, and when it reaches the reorder point the ERP or purchasing system creates a replenishment action. In warehousing, barcode and RFID scans plus real-time inventory records replace cycle-based checks, enabling faster replenishment for fast-moving SKUs. The trigger uses inventory position rather than on-hand quantity alone, so pending receipts and backorders are included. The reorder point is set to cover expected demand during lead time plus safety stock, maintaining service while avoiding excess stock. Because replenishment is triggered immediately when the threshold is crossed, continuous review reacts faster than periodic review and often requires less safety stock.
- Phantom stock causes false low-quantity signals: When backflushes, scrap, returns, or receipts are posted late, the system sees depletion that does not physically exist. Premature purchases and expediting follow, disrupting fast-moving production components.
- Underestimated lead time triggers late reorders: If actual supplier or internal transfer lead time exceeds the value used in the reorder point, replenishment arrives after the buffer is gone. Line starvation, operator waiting, and emergency buys become routine.
- Safety stock too low for variable demand: A reorder point based on average demand cannot absorb demand spikes or uneven lot consumption. Repeated stockouts, missed production schedules, and receiving bottlenecks occur once the buffer is exhausted.
What is the decision variable in a continuous review system?
The decision variable is the inventory position, not just physical on-hand inventory, because open purchase orders and backorders must be included in the replenishment trigger.
What determines the reorder point?
The reorder point is determined by expected demand during lead time plus safety stock, where safety stock is sized to protect the target service level against demand and lead-time variability.
When is continuous review preferable to periodic review?
It is preferable when items are high value, critical to production, demand-sensitive, or can be tracked electronically in real time, because the system can react immediately to consumption rather than waiting for fixed review intervals.