What is a disadvantage of the fixed-period inventory system?

A disadvantage of the fixed-period inventory system is that a stockout is possible. In this inventory management approach, orders are placed at predetermined intervals rather than being triggered by stock levels. This can lead to situations where demand unexpectedly exceeds supply, especially if the lead time for replenishment is longer than anticipated. Consequently, if the usage rate is not accurately forecasted or if there are fluctuations in demand, the fixed intervals can result in stockouts before the next order is received.

This characteristic makes the fixed-period system particularly sensitive to variability in demand and lead time, highlighting its potential drawback in maintaining consistent inventory levels. A stockout can disrupt operations, lead to lost sales, and harm customer relationships, underscoring the importance of accurate demand forecasting and timely replenishment in supply chain management.