What This Article Covers
- The Problem with Safety Stock Calculation
- Our Solution
- Getting the Overview of Safety Stock as Integrated with Other Factors
Losing your mind with safety stock calculation? You don’t have to, now you can our online tool that has a better dynamic safety stock calculation that simplifies and systematizes the calculation and the management.
Safety stock is designed to buffer variability on the demand side as well as the supply side and is to be consistent with the service level targets of the company.
The Problem with Safety Stock Calculation
What was laid out above is the principle, but the problem is that the standard safety stock formula is unusable. In fact, there are no studies that demonstrate that the dynamic safety stock formula is used in companies — even though it continues to be taught and is frequently discussed. Yet safety stock cannot rationally be calculated in isolation from other factors in the supply chain.
How is nearly always calculated (when it is calculated at all)…that is right, in isolation for each product location.
Having found the problems with safety stock management to be consistent over decades of reviewing supply planning systems, we developed a modification to the standard safety stock formula that works much better. However, calculating a safety stock for a product location in isolation of all the other product locations makes no sense.
Getting the Overview of Safety Stock as Integrated with Other Factors
Safety stock should not be calculated in a vacuum, because companies cannot carry any level of stock — there are limits not only in the inventory that can be carried but in the storage space among other factors. Without accounting for these limits in the calculation, the values will need to manually adjusted to bring them into line with the constraints.
All of this is why with the Brightwork MRP & S&OP Explorer the calculation of safety stock values can be checked against the summed totals of the inventory constraints all while being consistent with the service levels set for the various product groupings.
This is safety stock calculation in the most integrated way possible.