A Comparison of Continuous and Periodic Review
on Inventory Components of Dump Trucks
Mohamad Toha, Didik Eko Prastyo, Adi Saptari
Department of Industrial Engineering, Faculty of Engineering,
President University
Indonesia
mohamad.toha@president.ac.id
Abstract - Proper inventory planning can facilitate smooth
the production process. It will minimize the problem of out of
stock and over stock. The case company has a problem in
controlling the availability of components, namely the
occurrence of shortages of stock that caused the production
process disrupted. The ABC analysis method is used to see the
classification of components often out of stock. Inventory
planning methods with continuous review and periodic review
method were compared to determine optimal ordering lots,
and reorder points. It also examined inventory policies, namely
service level, safety stock, ordering costs, holding costs, and
cost due to possible shortages. The results showed that for this
particular problem continuous review is better than periodic
review. It provided saving for total inventory costs IDR
54,570,335.54, or 16% of the actual inventory cost. Whereas,
for the periodic review method saved of IDR 19,270,001.03 or
6% of the actual cost of inventory.
Keywords: inventory, out of stock, over stock,, continuous
review, periodic review,
I. INTRODUCTION
The development of science and technology especially in
compoter hardware and software have bring the intensity of
competition among industries. Companies are required to
make a product improvement, for example on the quality of
product. With improvements in the process will produce a
quality product, so that it will be able to compete with other
in the local and global markets [1][2].
In general, the purpose of a company is to be able to
survive with a long time and get profits and be able to
develop following the market developments that occur. To
get this, it must be able to manage resources properly and
correctly. One important area is controlling the inventory
components. Because with control on the supply of
components can balance the production process [3][4].
Companies engaged in the manufacturing industry certainly
need raw materials to launch production, controlling
availability is very important. Therefore it is necessary to
handle good and appropriate availability of components.
There are many techniques of inventory that may be
used, it depends on the problem characteristics of each
production and demand. The optimum quantity usually
based on the cost considerations that provide the minimum
total cost. However inventory techniques has been
developed significantly.Many scenario of possible situation
have been explored, this including the continuous review
(Q) and Periodic Review [4][5][6].
The company company engaged in manufacturing heavy
equipment, which has 6 product variants, namely Trailers,
Dump Trucks, Big Suppeq, Small Suppeq, Big Vessels and
Other. These come with many product variants. In the
process of planning and controlling of products, it requires a
reliable system support. Complication control components
increase with the existence of interchange components,
namely one type of component used in another variant
product, for example small medium vessel products. This
product has 2 types of products, namely tipper vessel and
dump vessel.
At this time the company facing problem such as often
out of stock which causes the production process to be
disrupted These problems occur due to improper ordering,
reorder points, and safety stock inventory. In addition, the
probabilistic demand pattern for this product adds to the
complexity of the deterministic planning pattern. The
production target to be achieved often out of target. So that
it has an effect on high inventory costs. To support the
inventory planning and control process, improvements need
to be done to support the production target to be achieved.
II. METHODOLOGY
1. Collect historical data components of DV (Dump
Vessel) and TV,(Tipper Vessel) which often out of
stock of inventory.
2. Select the material of DV/TV components to be
examined. ABC analysis implemented to select
materials that significantly contribute to the cost. This
classification is based on the value of the components.
3. Check is the assumption for both Q and P systems
whether can be implemented in the current inventory
system;
4. Apply continuous (Q) and Periodic (P) review
techniques.
5. Compare two approach based certain criteria such as
Service level; Total cost incurred for each approach.
III. RESULTS AND DISCUSSION
A Data collection
Components of DV / TV data were taken from 7 DV /
TV product variants in Bill of Material (BOM). These two
product has 92 components. The product variants include
DV 15 Quester Underbody, DV 17 Scania, TV 24 Neo,
Underbody, TV 26 Wrapping Quester, TV 30 Bending, TV
30 Wrapping Scania, and DV 20 Scania. Among 92
components of DV/TV, there were 13 components which
often has problem of out of stock. Figure 1 shows the list of
DV/TV components out of stock 2018. Table 1 indicates the
list of material out of stock and its cost such as ordering
cost, holding cost and out of stock cost.
 In the ABC analysis it was found that class A contained
16 component items, class B 18 items and class C there
were 58 items. With a percentage value of 79.1% for class
A, 15.8% for class B. and 5.2% for class C.
Class A items has 16 components. From 16 components
not all components have problem of out of stock. Checking
to the list only 7 out of 16 has the problem. The seven
component as indicated in Table

TABLE III. CLASS A COMPONENTS OUT OF STOCK

DEMNAD
NO. DESCRIPTION P/N
JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE
1 WET KIT CILINDER FE 149 VHTV3-03830 63 50 50 44 80 23 40 30 36 23 13 47
2 WET KIT UNDERBODY FC 129 AD1801-H1000000 5 30 22 34 41 32 18 38 18 36 75 12

Figure 1. DV/TV components out of stock 3 DUMP HOIST UNION VHPA04-20001 5 30 22 34 41 32 18 38 18 36 75 12

4 SUBFRAME R71517-F1000000 5 30 22 24 17 20 11 21 10 36 39 39
5 BOTTOM R81804-B1400000 5 30 22 17 17 20 11 21 10 36 39 12
TABLE I RAW DATA OF DV/TV COMPONENTS 6 SIDE WALL LH R72001-B1100000 12 15 5 10 12 13 10 10 13 13 13 10
Demand stddev. Lead Std.Lead cost holding shortage average 7 SIDE WALL RH R72001-B1200000 12 15 5 10 12 13 10 10 13 13 13 10
No. P/N Description
( years) demand time(month) time(period) order(IDR) cost (IDR) cost (IDR) demand
For this research only class A components were
1 WET KIT CILINDER FE 149 VHTV3-03830 D S L S√L A h Cu 𝜇
499 19 0.7 15.15 200,000 3,450,000 300,000 42
assessed, the B and C class were left to be assessed further.
2 DUMP HOIST UNION VHPA04-20001 D S L S√L A h Cu 𝜇
361 18 0.3 10.40 200,000 2,346,435 300,000 30
3 WET KIT UNDERBODY FC 129 AD1801-H1000000 D S L S√L A h Cu 𝜇
C Asumption on Q and P systems
361 18 0.7 14.70 200,000 1,455,000 300,000 30
4 SUBFRAME R71517-F1000000 D S L S√L A h Cu 𝜇 For Q systems to be operated , there are some
274 11 0.23 5.48 200,000 909,356 300,000 23
5 BOTTOM R81804-B1400000 D S L S√L A h Cu 𝜇
assumption should be fulfilled.
240 10 0.3 5.74 200,000 1,380,000 300,000 20 1. Demand is known, constant, and independent
6 SIDE WALL LH R72001-B1100000 D S L S√L A h Cu 𝜇
136 3 0.27 1.33 200,000 1,643,221 300,000 11
2. Lead time is known and constant
7 SIDE WALL RH R72001-B1200000 D S L S√L A h Cu 𝜇 3. Receipt of inventory is instantaneous and complete
FRONT WALL R71403-B1300000
136 3 0.27 1.33
S√L
200,000 1,642,722 300,000 11
4. Only variable costs are setup and holding
8 D S L A h Cu 𝜇
118 11 0.233 5.31 200,000 686,956 300,000 23 5. Stock outs can be completely avoided
9 FRONT WALL R71703-B1300000 D S L S√L A h Cu 𝜇
96 15 0.3 7.75 200,000 1,005,424 300,000 13
10 SUBFRAME R82426-F1000000 D S L S√L A h Cu 𝜇
For P review to work, some assumption as depicted
121 12 7.000 31.75 200,000 920,030 300,000 10 below should be
11 FRONT WALL R72001-B1300000 D S L S√L A h Cu 𝜇
136 3 0.233 1.45 200,000 1,642,722 300,000 11
1. Demand during the planning horizon are
12 SIDE GUARD R82432-G1100000 D S L S√L A h Cu 𝜇 probabilistic and normally distributed with mean (D) and
BRACKET TANK HYD R83012-H2000000
236 35 0.233 16.91 200,000 150,000 300,000 36
standard deviation (S);
13 D S L S√L A h Cu 𝜇
751 35 0.233 16.91 200,000 59,377 300,000 63
2. The time between constant ordering T for each
order, the item will come simultaneously with the lead time
B. ABC Analysis: (L)
3. The price of goods is constant regardless the
Based on DT/TV data of all 92 components, an ABC analysis quantity of goods ordered and time;
is performed. Table 2 and Figure 1 shows the ABC Analysis 4. The ordering cost denoted by A is constant for each
results. order and the holding cost by h proportional to the price of
the goods and storage time;
TABLE II. ABC ANALYSIS 5. The cost of inventory shortages is denoted by Cu
Cumm value
Class Total Percent (%) Cumm (%) Value (%)
(%) proportional to the number of items that cannot be served, or
A 16 17% 17% 79.1% 79.1% proportional to the time (not dependent on the number of
B 18 20% 37% 15.8% 94.8% deficiencies.
C 58 63% 100% 5.2% 100.0% These requirements according to the person incharge in
TOTAL 92 inventory satisfied with the assumption of Q and P review
above.
D. Q and P Review Assessment

To proceed Continuous review (Q) and Periodic Review

(P), data need to be check wether they are normal. A
Normal ity Test Kolmogorov Smirnov was used..
Data for 12 months were used to check Normality. For
example one of the component in A class has
For example the demand data for VHTV3-03830
components, in Table 3 indicates the monthly request from
July 2017 to June 2018. This normality test is carried out the
demand. Table 4 shows the statistics of demand VHTV3-
Figure 2. ABC analysis for dv/tv components
03830. The Hypothesis test for normality as follow:
Ho: out of stock component data is normally distributed
 H1: out of stock component data is not normally
distributed
Table 4 Demand of Component VHTV3-03830
AVERAGE 41.58333333
STD.DEV 18.55438362
COUNT 12
MAX 0.158383984
The data had an average of 41,583, and the standard
deviation was 18,554. Then the results of the Kolmogorov
smirnov test obtained a maximum value of 0.1583, then
compared with the normal distribution table. It concludeded
that the maximum value is smaller than the D Kolmogorov
smirnov table, 0.1583 <0.3754. So the data is normally
distributed.. For that data can be continued for the
calculation process with the continuous review method.
Q Continuous Review:
In determining the value of Q0 *(optimum Quantity
order) and the reorder point R * can be searched by iterative
method such as the Hadley-Within method where the order
lot value Q0 and the reorder point R * can be obtained as
follows: For example of calculation only one component of
class A i.e component R72001-B1100000.
1. Calculate the value of Q01 with Wilson's
formula
Zα = 0.73; f(Zα) = 0.3056; Ψ(Zα) = 0.1358
N = 3 x √0.3[0.3056-(0.73x0.1358)]
N = 0,5306
Q02 = 7.71
Zα and Ψ (Zα) values can be found in the Normal Table.
With new Q02 value, calculate the value of ⍺ = Probability
of inventory shortage,
⍺ = (hQ₀₂) / CᵤD
Z⍺ = 0.49
With new information of and Z , recalculat R2 value
using
R2 = DL + Zα x S√L;
1.41
5. Compare the value of Q01 = Q02and the value of R1
and R2 if the value is relatively the same then the iteration is
completed.Then R1 = R2, and Q01 = Q02, if the value is not
the same then continue with iterations.
6. end.
It turn out that the value are not the same, so the iteration
is continue till the value are closed to each other.
On the second iteration the value as follow:

Q01 R3 41.6
Where: Q01 = Order Lot; D = Request in a year; A = Compare between Q02 and Q03 and R2 and R3.
Ordering cost; h = Holding costs. It is apparent that both value is not closed, so continue to
the 3rd iteration.
2. Based on the value of Q01 obtained, it will The results of 3rd iteration as follow:
be possible to find the risk of inventory shortage, ⍺. R1
*, the reorder point can be found by using the following R4 41.6
equation: Compare between the Q03 and Q04, R3 and R4. It turns
3. α out the R3 and R4 is equal whereas the Q03 and Q04 is
α = Possibility of inventory shortages slightly different. Since the different between the Q is not
Zα is obtained from the Normal table significant so may conclude that the iteration may stop.
Cu = costs due to shortage;
R₁ = DL + Zα S√L where S, standard deviation and L, Inventory policy:
Lead time. 1. Safety Stock
R1 = 41.83
Ss = Zα x S√L = 0.57 x 5.48 = 1
4.. By knowing R1 *, Q02 * can be obatained based on
the formula Q02 * 2. Service Level

η =1-

3. Ordering Cost
Where N:
 4. Holding cost N = 𝜎𝐷 x x f(Zα)x (Zα x ΨZα)
N = 11x ) x 0.1023) – (1.65x 0.0206)
N = 0.19

Total cost of the P systems:

5. Shortge cost: 1. Ordering Cost =

= = Rp 4,991,628.07

2. Holding cost =
6. Total Cost :
Or = Op + Os + Ok = 3,849,871.23 + 6,358,667.57 + 5.78 – + 0.19)* 909,356
1,953,186.03 = Rp 12,161,724.83 = 9,302,711.88.
This total cost for only one item that is component
R72001-B1100000. For total cost all 7 items in A class item 3. Cost due to shortage =
would be : Rp. 283,791,237.63

P Periodic review
For example of calculation P periodic review, sample of
the component subframe, no. RS71517-F000000 is used.
Demand (D) for the item = 274 unit; S; (standard Total cost =
deviation) = 11 unit; Lead time, L, (year) =0.02 SL=5.48; = Rp 4,991,628.07 + Rp 9,302,711.88+ 1,416,475.44
Ordering cost (A)= 200,000; Holding cost (h) =909,356; = Rp 15,710,815.39
Shortage cost (CU) = 300,000; Average demand µ =23. .
This total cost only for one item component subframe,
1. First step to find the optimum Q by using no. RS71517-F000000. For all class A the total cost of P
formula as: periodic review would be:
Rp. 319,091,572.14

In Figure 3 shows a comparison of actual costs, with the

cost of the continuous review method and periodic review
method where the actual total cost of inventory was Rp
338,361,573.17. The continuous review method provides Rp
283,791,237, and the cost for the periodic review method is
Rp 319,091,237.
From the 2 proposed methods, the continuous review
method offered better cost. It provides reduce the total
2. Determine the periodic interval inventory cost of Rp. 54,570,335.54. or ± 16%. While the
P= Periodical Interval; Q01 = quantity order Lot; periodic review method can reduce costs by Rp
D = Demand in a year 19,270,001.03, or ± 6%

3. Calculate Safety stock Ss

Ss = 𝜎𝐷 x Zα
Ss = x 1.65
Ss = 4.57 ≈ 5 unit

4. Find the Target of Inventory T :

T = d x ( P + L ) + Ss
T = 23x (0.04 + 0.02) + 5
T = 21 unit
5. Assuming the service level is 95% then Zα
= 1.65.
Next find the value of N = Expected Demand not Figure 3. Comparison total inventory cost
accomplished where:
f(Zα) = Density Function; Zα(Ψ) = Standard Loss
Function;
 IV CONCLUSION

Two alternative inventory planning were proposed

to be assessed as an alternative solution to the problem faced
by the case company. These are Q systems inventory
planning with the Continuous Review and P Systems
method, the Periodic Review method.
Both of these methods are proposed because it was fullfill
the assumption. It has the ability to manage inventory
systems if there are elements of probability or uncertainty in
demand and also lead time.
From the calculation of the inventory costs obtained the
Continuous Review method offered Rp. 283,791,237 or
whereas the actual inventory totals cost was Rp.
338,361,573.17. It offered a reduction of inventory costs of
± 16% or Rp. 54,570,335.54 Of the actual cost.
Iinventory costs from Periodic Review method obtained at
Rp 319,091,237 or a decrease in inventory costs of ± 6% or
Rp 19,270,001.03 from the actual cost.
Of the two proposed methods in terms of total cost, the
Continuous Review method offered better cost.

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