Safety stock is the extra inventory that you keep on hand to prevent stockouts and meet customer demand. But how much safety stock do you need in your manufacturing operations? And how can you calculate it using material requirements planning (MRP)?
MRP is a system that helps you plan and schedule the production and purchase of materials based on your demand forecasts, lead times, and inventory levels. MRP generates outputs such as planned orders, purchase orders, and inventory status reports. MRP also requires inputs such as bill of materials, master production schedule, and inventory records. One of the inputs that affects your MRP outputs is the safety stock level.
Basicamente existem dois métodos para determinar o nível ideal do estoque; o primeiro que leva em considera??o o consumo histórico e o segundo que faz a previs?o baseado na demanda futura. Geralmente utiliza-se softwares baseados em modelos matemáticos de previs?o linear. Em ambos os casos é importante incorporar ao modelo de previs?o o leadtime para aquisi??o dos produtos.
In a perfect world you look at your lead time, and I would keep that as safety stock. You can ask your supplier to reduce the lead time by them carrying some carrying some stock on their end, and that will help you not to carry as much. Of course you have negotiate this with them. There are different methods to reduce it.
Safety stock acts as a buffer against uncertainty and variability in your supply chain. It helps you avoid the costs and consequences of stockouts, such as lost sales, customer dissatisfaction, and production delays. However, safety stock also has costs and risks, such as carrying costs, obsolescence, and excess inventory. Therefore, you need to balance the benefits and drawbacks of safety stock and find the optimal level that minimizes your total cost.
There are different methods and formulas to calculate safety stock, but one of the most common ones is based on the service level and the standard deviation of demand and lead time. The service level is the percentage of time that you want to meet or exceed customer demand. The standard deviation is a measure of how much your demand and lead time vary from their average values. The formula is: Safety stock = (service level factor) x (standard deviation of demand during lead time) The service level factor is a number that depends on the service level you choose. For example, if you want a 95% service level, the factor is 1.65. If you want a 99% service level, the factor is 2.33. You can find the factor using a normal distribution table or a calculator.
The standard deviation of demand during lead time is the square root of the sum of the squares of the standard deviation of demand per period and the standard deviation of lead time multiplied by the average demand per period. You can calculate it using historical data or estimates. The formula is: Standard deviation of demand during lead time = sqrt((standard deviation of demand per period)^2 + (standard deviation of lead time x average demand per period)^2)
Once you have calculated your safety stock level, you can use it as an input in your MRP system. You can either add it to your reorder point or subtract it from your available inventory. The reorder point is the minimum inventory level that triggers a replenishment order. The available inventory is the inventory that you have on hand or on order minus the inventory that is allocated or reserved for existing orders. By adjusting your reorder point or available inventory with safety stock, you can ensure that your MRP outputs reflect your desired service level and inventory policy.
One thing I have found helpful is using the PQ( Product-Quantity) chart, we can find out the Runner,Repeater and Stranger parts.Based on this classification we can decide the safety stock levels for all parts which can be added during MRP.(never plan the inventory of Stranger parts).Runner and Repeater parts delivery will be ensured through defined stocks (Make to stock) and stranger parts delivery will be ensured through the 'Make To Order' approach.
Safety stock is not a fixed or static number. It can change over time due to factors such as demand fluctuations, lead time variations, supplier reliability, quality issues, and market conditions. Therefore, you need to monitor and adjust your safety stock level periodically to keep it aligned with your actual performance and goals. You can use metrics such as fill rate, stockout frequency, inventory turnover, and inventory carrying cost to evaluate your safety stock effectiveness and efficiency. You can also use tools such as ABC analysis, cycle counting, and inventory audits to identify and correct any errors or discrepancies in your inventory records and MRP inputs.
The key to holding safety stock is to ensure your business isn't holding it. Instigate a 2 bin system where the second bin is held at the suppliers. And you call upon in it when u hit a stock level set by yourself