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EXAMPLE & CALCULATING An organization may have inventory of 40 widgets which is consumed on average 10 per week (therefore four weeks supply). The lead time from the supplier is one week. And the reorder level is set to 20 which includes the 10 items that will be consumed during the re-supply lead time and a further 10 safety stock which will act as a buffer should either replenishment be late or demand vary from expected. There are a variety of determinants to calculating safety stock these include, availability of the stock (leadtime and likelihood of late delivery) and target service level i.e. ratio of demand filled against total demand. REDUCING SAFETY STOCK Safety stock is usually used as a buffer to protect organizations from stock outs caused by inaccurate planning or poor schedule adherence by suppliers, as such it’s cost (in both material and management) is often seen as a drain on financial resources http://www.supplychainmechanic.com/?p=18 –Calculating safety stock which results in reduction initiatives. Various methods exist to reduce safety stock, these includes better use of technology, increased collaboration with suppliers, and more accurate forecasting The IOMA Handbook of Logistics and Inventory Management By Bob Donath, Institute of Management and Administration (Ioma), Institute of Management & Administration. In a lean supply environment lead times are reduced which can help minimize safety stock levels reducing the likelihood and impact of stock outs.MA Stitch in Time: Lean Retailing and the Transformation of Manufacturing By Frederick H. Abernathy Due to the cost of safety stock many organizations opt for a service level led safety stock calculation for example 95% service level which could result in stock outs but at a level which was satisfactory to the company. The lower the service level the lower the requirement for safety stock REFERENCES |
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