11.1 Inventory Management Policies

Inventory sits at the center of CPIM Domain VI because every planning system eventually becomes a set of replenishment rules. Sales and operations planning sets volume; master scheduling and MRP translate that volume into time-phased needs; inventory policies decide what actually leaves the warehouse and when. On the exam, policy questions rarely ask for a formula alone—they ask whether the firm should push or pull, review stock continuously or on a calendar, and how visual signals such as two-bin and kanban change authorization of supply.

Why Inventory Policies Matter

A policy is the durable rule that survives day-to-day noise. Without one, planners chase hot lists, expedite everything, and bury working capital in the wrong SKUs. With a clear policy, the organization can state: for this item class, we reorder when on-hand plus on-order falls to R, we order Q or up to S, and we tolerate a defined risk of stockout. That clarity links finance (inventory investment), operations (setup and ordering effort), and customer service (availability).

Consider a medical-device assembler that stocks 4,200 purchased components. High-volume fasteners can run on a kanban loop to the line. Unique circuit boards with 12-week lead times need push from MRP with safety stock. Seasonal packaging might use periodic review so buyers combine orders with a single freight consolidation each Friday. Same plant, three policies—each matched to item economics.

Push Versus Pull

Push systems release material based on a plan. MRP calculates net requirements from the master schedule, lead times, and bills of material, then launches planned orders. Push works well when demand is relatively stable, lead times are long, and many dependent-demand items must be coordinated. The risk is that the plan drifts from reality: if actual usage falls, inventory piles up; if usage spikes, shortages appear before the next reschedule.

Pull systems authorize replenishment from actual downstream consumption. A empty kanban card, a scanned bin, or a supermarket withdrawal tells the upstream process to make or move more. Pull limits work-in-process and finished goods to the signal quantity, which improves responsiveness and exposes process problems. Pull struggles when lead times exceed the signal horizon, when demand is highly lumpy, or when shared capacity cannot respond item-by-item without a higher-level plan.

In practice most factories are hybrid. MRP may push long-lead purchased parts while final assembly pulls from a finished-goods supermarket. Distribution centers may push seasonal builds into the network, then pull replenishment from regional warehouses based on POS. CPIM expects you to name which signal authorizes supply—and what that implies for inventory ownership and variability.

Continuous Review Versus Periodic Review

Continuous review (often called a reorder-point or (s, Q) system) monitors inventory position after every transaction. When on-hand plus on-order minus backorders reaches the reorder point (s or ROP), the system places an order of fixed quantity Q (or another lot-sizing rule). Continuous review reacts fast to demand spikes and suits high-value or high-criticality items when transaction systems are reliable.

Periodic review (an (R, S) or order-up-to system) inspects inventory at fixed intervals—R days—and orders enough to raise inventory position to target level S. Between reviews, stockouts can grow unnoticed, so safety stock must cover demand over review interval plus lead time. Periodic review reduces ordering effort, supports joint replenishment of many SKUs from one supplier, and fits items with low transaction volume or shared freight schedules.

A practical contrast: a hospital pharmacy may continuous-review narcotics with barcode issue, but periodic-review low-cost gloves every Monday with a single distributor order. Same service environment; different review economics.

Min-Max, Two-Bin, and Kanban Signals

Min-max is a common continuous-review flavor: when inventory falls to or below min (the reorder point), order enough to reach max (the order-up-to level). The difference between max and min roughly sets the order quantity, while min embeds lead-time demand plus safety stock. Min-max is easy to explain on the floor and easy to parameterize in ERP, but parameters drift if usage or lead time changes and nobody recalibrates.

Two-bin is a visual continuous-review method. Stock sits in two containers. Workers draw from the first bin; when it empties, they open the second and trigger replenishment of one bin quantity. The empty bin is the signal. Two-bin suits inexpensive, high-usage items where formal counting every issue is wasteful. Failure modes include mixing bins, borrowing from the reserve without signaling, and using a bin quantity that no longer matches lead-time demand.

Kanban extends the visual pull idea into production and material movement. A kanban card (or electronic equivalent) authorizes a specific quantity of a specific item to be produced or moved. The number of cards times card quantity sets the maximum inventory in the loop. Calculating cards typically considers demand rate, lead time, container size, and a safety factor. Kanban inventory signals fail when cards are lost, when containers are oversized, or when upstream capacity cannot refill within the assumed lead time—so planners must still watch signal health, not only card count.

Visual Review Systems

ECM 9.0 lists the visual review system as its own replenishment method, and it is the simplest one on the list: a person looks at the stock and reorders when it appears low against a marked line, a painted floor square, or a full/empty rack position. There is no perpetual inventory record driving the decision and no calculated reorder point — the shelf itself is the record.

Where it fits among the named methods:

Visual review is cheapest to run and weakest in control: it suits low-value, high-usage, short-lead-time items where a stockout is cheap and quickly cured. It is a poor fit when demand is lumpy, lead time is long, or the item is expensive — there the cost of a missed visual check exceeds the transaction cost it saved.

Exam trap: two-bin is a specific, disciplined form of visual control with a predetermined reserve quantity sized to cover lead-time demand; a generic visual review has no such guarantee. Do not treat the two terms as interchangeable.

Scenario: Choosing a Policy Set

A regional distribution center stocks 800 SKUs for industrial fasteners. Class A specialty bolts have high margin and 3-week overseas lead time; class C washers are cheap, domestic, and replenished weekly on a milk run. Specialty bolts should use continuous review with a calculated reorder point and perhaps a push from a weekly MRP for long-horizon visibility. Washers fit periodic review or two-bin/kanban from a local supplier supermarket. If management forces one policy on all 800 SKUs, either service collapses on A items or working capital explodes on C items. Domain VI scoring favors the candidate who segments policy by item characteristics.

Exam Traps to Avoid

• Treating pull as “no inventory”—pull still holds supermarket stock; it just caps and signals it.
• Confusing review interval with lead time—periodic systems must protect both.
• Assuming min-max always uses EOQ—max−min is a policy quantity, not automatically an economic lot.
• Ignoring signal discipline—two-bin and kanban only work when empty equals “order now.”