Final answer:
Periodic review is appropriate for situations with variable demand where ordering at regular intervals is convenient, offering the advantage of simplifying the ordering process. However, it typically increases average inventory levels due to safety stock.
Step-by-step explanation:
A wholesale company considering the switch from a reorder point (ROP) inventory management system to a periodic review (PR) system should understand the scenarios where PR is more appropriate. Periodic review is particularly suited for situations where demand is variable and it is more convenient to order at regular intervals rather than continuously monitoring inventory levels.
The advantage of PR in such a situation is that it simplifies the ordering process, as orders are placed at the end of each review period, which can be aligned with supplier schedules or batch processing.
The implementation of a periodic review system often results in an increase in the average inventory levels. This is because a safety stock is often included to cover for variability in demand and supply lead times, ensuring enough inventory is available until the next review period.