A classic example of a periodic review inventory system is a soft drink machine.
At regular intervals a vendor visits the machine, checks the inventory levels and refills the machine. Because the capacity of the machine is fixed, the vendor uses an order-up-to policy, where the order-up-to-level is set by how much the machine can hold. To begin with, suppose that the replenishment cycle is fixed (e.g., the vendor fills the machine every Friday). Clearly the factor that affects the fill rate (percent of customers who do not find the machine empty) is the average demand rate (µ in the above notation). A machine in a prime location near the employee lunchroom is much more likely to stock out than a machine in a remote corner of an overly air conditioned building. Of course, to compensate for this, the vendor would visit the high demand machine more frequently than the low demand machine. For instance, suppose the lunchroom machine had average demand of 20 bottles per day and the remote machine had average demand of 4 bottles per day. Then if the vendor replenished the lunchroom machine every 2 days and the remote machine every 10 days, both would have average demand of 40 bottles during the replenishment cycle. If the replenishment cycle is set so that average demand is the same, then other factors, will determine the fill rate. The most important is the standard deviation of demand (σ in the above notation). For instance, suppose the lunchroom machine and a machine on a beach both sell on average 20 bottles per day. However, demand at the lunchroom machine is very steady, while demand at the beach machine varies widely depending on the weather. So, while the lunchroom machine sells very nearly 20 bottles every day, the beach machine might sell 40 one (hot) day and none the (cold, rainy) next. If the vendor visits these two machines on the same cycle, the beach machine would stock out much more frequently than the lunchroom machine. To achieve comparable customer service, the beach machine would either have to hold more bottles or be refilled more frequently. Finally, another alternative to improve customer service without excess visits by the vendor would be to switch from a periodic to a continuous review system. If the bottler were to embed radio frequency identification (RFID) devices in the bottles, then the vendor could monitor the stock levels in all machines in his/her region and only replenish machines when they are close to empty. With clever scheduling, the vendor should be able to visit machines less often and still achieve better customer service.