- This is my presentation on Nov 15th 2017.
- This describes how supply and production planning implementations tend to play out.
I am presenting at the November Foresight Conference. In Raleigh, NC on Wednesday, Nov 15th. The topic of my presentation will be A New Approach to Safety Stock and Service Levels.
On Service Level and Safety Stock Setting
As those that have read my supply chain articles previously, you may know that I have concluded there are far more effective ways to manage service levels and safety stock than is typically accomplished in companies. And to understand why it means getting into some background regarding how service levels and safety stock are set at companies.
If one analyzes supply and production planning systems ranging from ERP to specialized external systems (which we have as implementers for some time), it becomes readily apparent that most of the effort goes into what is referred to as the “method.”
The following are the method available in supply and production planning.
- Cost Optimization
- Inventory Optimization and Multi-Echelon
How Supply and Production Planning Implementations Tend to Play Out
There tends to be a great focus on the method used for supply and production planning. On most projects, that I have either implemented or evaluated, most of the resources and emphasis goes into setting up the method, training users on the user interface, building data interfaces, etc.. What time is left over on the implementation goes to parameter setting? How many times has a company made no addition to headcount to manage parameters, expecting the software they purchase to do this automatically for them?
When companies move from one method to a more sophisticated approach (for instance, MRP to cost optimization), it is usually the case that the company will have not yet mastered their parameters. This means that they will, I think in the vast majority of cases, have not come close to optimizing the software they currently use, before moving onto the next software package.
However, outside of inventory optimization and multi echelon (which is still lightly installed) none of the planning methods do anything to help set those parameters. This does not mean the functionality does not exist to do this — it does. But the software expects intelligence from the implementing company to set up the software to do so.
Safety stock and service levels are two of the most important of these supply and production planning parameters.
In the presentation, I will provide the following:
- The Appropriate Context: The background for the reasons that safety stock and service level, as well as the other parameters, end up, so sub-optimized.
- Improvement Opportunities and Rought Effort Estimates: How to improve this condition at a reasonable expense of time and money.
- Actual calculations: I will show calculations that explain how this can be accomplished using several test cases that can meet all of the objectives that I layout at the beginning of the presentation.
This presentation was interesting for all parties. As a presenter what I found quite interesting was that many of the participants were surprised by how little support there is for companies determination of service levels. There are extremely few companies that can model their service levels.
To find out more about the Foresight Conference see this link.
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A number of the concepts presented lead into the Brightwork Explorer.
Brightwork MRP & S&OP Explorer
Safety Stock and Service Level Book
Important Features About Safety Stock
How Systems Set Safety Stock
The vast majority of systems allow the setting of safety stock by multiple means (static, dynamic, adjustable with the forecast in days’ supply, etc..). However, most systems do not allow the safety stock to be set in a way that is considerate of the inventory that is available to be applied.By reading this book you will:
- Understand the concepts and formula used for safety stock and service level setting.
- Common ways of setting safety stock.
- Service levels and inventory optimization applications.
- The best real ways of setting both service levels and safety stock.
Chapter 2: Safety Stock and Service Levels from a Conceptual Perspective
Chapter 3: The Common Ways of Setting Safety Stock
Chapter 4: The Common Issues with Safety Stock
Chapter 5: Common Issues with Service Level Setting
Chapter 6: Service Level Agreement
Chapter 7: Safety Stock and Service Levels in Inventory Optimization and Multi-Echelon Software
Chapter 8: A Simpler Approach to Comprehensively Setting Safety Stock and Service Levels