What role does safety stock play in your inventory optimization strategy?

Safety stock plays a crucial role in maintaining inventory cover and striking the right balance between excess and insufficient stock.

Safety stock is mandatory which can help you to mitigate the risk of external factors like in transit delays, political situation of countries, recent example of Ukraine war which increased the in transit days of shipments, similarly safety stock can be helpful in avoiding additional costs of air shipments which cost much higher than usual. Other factors like upsurge in sales and demand servicing on timely basis when an unusual demand of your product appears out of no where.

Safety stock acts as a buffer against uncertainties in demand and supply, ensuring service levels are maintained and reducing the risk of stockouts. It optimizes inventory by balancing carrying costs and service level requirements.

Safety stock acts as a buffer in inventory optimization, mitigating stockouts caused by demand fluctuations, supplier delays, or forecasting errors. It helps ensure customer satisfaction and smooth operations by providing extra inventory during unexpected situations.

Safety stock is an essential component of inventory management that serves as a buffer against uncertainties in supply and demand. It ensures that a business can continue to operate smoothly and meet customer demands even when unexpected events occur. Safety stock is extra inventory held beyond the expected demand to protect against uncertainties and variability in supply chain processes. It acts as a safeguard to prevent stock outs, which can lead to lost sales, dissatisfied customers, and disruptions in production. Safety stock Contributes to an effective inventory optimization strategy: 1. Mitigating Demand Variability 2. Cushioning Supply Chain Disruptions (Geo-political tensions) 3. Enhancing Customer Satisfaction (OTD)

It is important to continuously monitor all variables at regular intervals especially when external factors come into play. Linking the variables with external factors (like economic conditions, global politics etc.) helps in understanding the situation better and take corrective actions.

Safety stock levels should not be static; they need to be adjusted dynamically based on changing conditions and real-time data. Safety Stock (S) = Avg. weekly demand (X) * No. of weeks (Y) Here, X is = Average Weekly Demand (as per transit lead time) Y is = No. of weeks stock wanted to maintain For Example, if my Average weekly demand for next 5 weeks (as per transit lead time) is 600 and If we need to have 2 weeks of stock in WH then, Safety Stock (S) = 500*2 =1200 pcs. Here average weekly is the dynamic variable. Based on the business model / Supply Chain design, these safety stock calculation differs.

Realizar un análisis para establecer las cantidades límites como stock de seguridad es importante para mitigar el problema de quiebre de stock en las existencias, para que esto funcione se debe recabar toda la información necesaria con el soporte del área de compras, ventas, producción y almacenes, analizar los consumos diarios, los ingresos promedios sobre las compras y el índice de rotación por cada ítem son fuentes vitales, paralelamente es importante tener una clasificación ABC de las existencias como parte de la prioridad en los cálculos.

When we talk about impact there will always be both positive and negative impacts. Here are some of them, Positives - 1. Prevent Stock-outs 2. On time Delivery (Customer Retention) 3. Minimize Production Disruptions 4. Avoid premium freight costs Negatives - 1. Increase Holding cost (Storage cost & WH handling cost) 2. Risk of Obsolescence Risk 3. Blocking cash flow

Es notorio que el flujo de caja impacte con los stock de seguridad pero ello depende mucho el análisis que se realice para saber mantener el stock de seguridad al mínimo posible y con un índice de rotación moderado, si bien esto demandará un espacio y costo de almacenamiento, debemos cuidar que el flujo de caja sea impactado al menor costo posible, por eso es importante tener una clasificación ABC para saber con que existencias se deben cuidar más el stock de seguridad y con cuales pueden ser tolerables ante un riesgo de quiebre, lo importante es mantener un equilibrio entre tener un menor impacto en el flujo de caja y menor quiebre de stock para mantener un buen servicio de abastecimiento a un bajo costo de almacenamiento.

Service level goals are metrics that reflect the percentage of customer demand that a company aims to meet without experiencing stock-outs. 1.Customer Satisfaction 2. Revenue and Profitability 3. Efficient Supply Chain

Here we have some ways to manage inventory turnover for safety stock: Improve forecasting: More accurate forecasts mean less safety stock needed. Reduce lead times: Faster deliveries allow lower safety stock levels. ABC analysis: Focus on optimizing safety stock for high-value (A) items. Vendor-managed inventory (VMI): Lets suppliers manage your stock levels. Review safety stock levels regularly: Adjust based on demand and lead time fluctuations.

Demand Fluctuations: Even with the best forecasting, demand can be unpredictable. Safety stock helps absorb unexpected spikes in demand without running out of stock.

Safety stock is a critical element in effective inventory management, providing a buffer against uncertainties and ensuring continuous operations. By accurately calculating and dynamically managing safety stock, businesses can achieve a balance between minimizing costs and maximizing customer satisfaction. Understanding and implementing safety stock principles is key to maintaining a balance between resilient and responsive Supply Chains.

Safety stock is in case we don't budget the amount required for per project in inventory. We can then retrieve that amount from the safety stock to complete the project.

Considering Lead Times and Variability: Safety stock should be higher for products with longer lead times or more variable demand. Inventory Carrying Costs: The cost of holding inventory needs to be factored in. I may hold less safety stock for expensive items. Service Level Targets: The desired level of customer service (fill rate) influences how much safety stock is needed.