What are the essential steps for setting safety stock levels in inventory forecasting?

What are the essential steps for setting safety stock levels in inventory forecasting? Understand demand fluctuations through historical sales data analysis. Consider the typical lead time for restocking, factoring in potential delays. Choose an ideal probability for consistently meeting customer demand. Weigh the consequences of stockouts against the costs of maintaining extra inventory. Adjust safety stock levels to cater to seasonal demand changes. Plan for Unforeseen Events Spot Critical Supply Chain Constraints Implement Advanced Forecasting (sophisticated software for precise stock level predictions).

My 2 cents on SS Planning Historical data #Demand variability- FCST Vs unconstraint orders (not the SD of demand). #Supply Variability - Lead time and its variability Future variables #Service Level - What Service level to offer in which demand channel. #Future Promotions – How accurately we can predict the promotions. #Sourcing Decisions - How covered you are with multiple supplier sourcing to control your lead time and quantity availability. #Weather events - Required for near real time INV planning. #Macroeconomic events- Political, Govt policies, taxes etc Most of the IT tools cover the past variables for INV planning. Still, human intervention is required to do inventory planning by considering multiple drivers

Setting safety stock levels in inventory forecasting is crucial. There are several ways: -Analyze historical demand data to identify patterns, trends, and variations in demand. -Determine the lead time required to replenish inventory, including the time it takes to place an order, process it, and receive the goods. -Establish the desired service levels, like customer demand % that the safety stock should cover. -Safety stock acts as a buffer to account for uncertainties in demand and lead time. -Adjust safety stock levels as needed. -Utilize Advanced Forecasting Tools These steps and regularly reassessing your safety stock levels, you can strike a balance between customer satisfaction and inventory holding costs.

In FMCG segment at times imperative to keep safety stock considering seasonalities, rate increases, stock out in market eg impact of Russia Ukraine war. Demand planning, SCM plays vital role to mitigate such uncertainty. However safeguarding safety stock is an critical element considering near expiry and Shrinkage - frequent Inventory Audit is essential in my opinion.

Understanding demand patterns is crucial for businesses as it allows for more efficient inventory management, reduces excess stock, improves customer satisfaction through better product availability, and helps in strategic planning for production and marketing efforts.

Planning & Procurement managers have manifold & varying definitions on lead times. Buffering for lead times requires a stable evaluation on outliers, as, once outliers are considered a part of lead time variability, it can play havoc on optimal safety stock calculations. - Supply variability calculations needs a well thought through evaluation / consideration.. Overall, review and correction periodicity of LT variability vis-a-vis safety stocks needs to-be frequent, and, it shouldn’t be a norm to correct safety stock with each review, at all variability junctures..

Lead time plays a crucial role in setting up target for Inventory level. Higher lead time adds complexity in terms of service flexibility there by increasing the safety stock.

Tracking lead times is one step that may be taken to determine lead time variability. But more important in minimizing safety stock is to achieve lead time consistency. In my view the best way to achieve this is through providing your vendors with rolling forecasts each month. If you provide a key vendor with a forecast of upcoming demand and they later attempt to increase the lead time then it is easier to hold them accountable for the lead times that they initially promised. It also makes life easier for your vendor because they can build your expected demand into their production schedule. Finally it shows commitment to a strategic partnership because it reveals the intended purchases and future opportunities of a positive relationship.

-Lead time is the most critical aspect for setting up the SS levels. -SS also to be reviewed based on the product segmentation of A,B and C class, so that we would make an effective decision. -The desired or target availability (service) level. -SS levels should be reviewed atleast once a quarter so that desired changes can be made, if required.

It can be decide on previous delivery and demand. Cost of material & process time of product lead a vital role. It can also depend on volume and value of product.

In determining this points, it is necessary to keep a strategic mindset. It is not always item in / item out model or something that pops out of Excel. In the case of physical retail, size runs and shelving play an integral role in the reorder point because of their impact on the selling ceremony. For example, there might be sufficient coverage of a low-volume size if the floor model is taken into consideration. However, in high-end retail, most customers don't want the floor model. The same is true if merchandised units are counted into inventory. A sales associate shouldn't have to strip a mannequin to make a sale.

Service level defines the probability of avoiding stockouts. A higher service level means a lower chance of stockouts but requires higher safety stock levels. Calculate the reorder point, the inventory level at which a new order should be placed, considering lead time and desired service levels. This helps maintain an optimal balance between avoiding stockouts and minimizing excess inventory.

?Choose your desired percentage of orders filled on time (e.g., 95% service level). ?Calculate the reorder point based on your demand forecast and lead time, ensuring you order new stock before reaching zero inventory.

To accurately determine safety stock it is essential to calculate the standard deviation of the demand and ideally the standard deviation of the lead time variability. It is possible to use the deviation of the demand only but for the best results the lead time variability should be included. You can then set a desired z-level, i.e. service level, according to the product, product class or product segment. All of this can very easily be achieved in Excel.

?Choose a formula suitable for your needs and data availability. Common options include: oBasic formula: Safety Stock = Maximum Daily Demand * Maximum Lead Time - Average Daily Demand * Average Lead Time oService Level-based formula: Safety Stock = z * sqrt(Demand Variance * Lead Time) oNewsboy formula: Safety Stock = (Critical shortage cost - Holding cost per unit) * sqrt(Demand Variance * Lead Time) / (Critical shortage cost + Holding cost per unit) ?Adjust the formula parameters based on your specific situation and desired service level.

No hay fórmula magica, y creo que para minimizar riesgos se deben de considerar mínimo 2 fórmulas para un stock de seguridad, una con mayor y una de menor desviación esto para encontrar un punto de equilibrio del inventario considerando 2 escenarios de la demanda real vs la esperada, recordemos que una variable afecta toda la sentencia.

Hay algo que es muy común y que obvian con respecto al stock de seguridad, siempre se llega a cumplir el promedio y no se considera el incremento normal que se da mes a mes.

A aplica??o de fórmulas de estoque de seguran?a é uma prática crucial na gest?o de inventário. Ao entender a demanda, calcular o lead time e avaliar a variabilidade, as empresas podem escolher fórmulas adequadas para determinar os níveis ideais de estoque de seguran?a. Isso oferece uma abordagem quantitativa e precisa para lidar com incertezas no fornecimento e na demanda. A constante monitoriza??o e atualiza??o garantem que a empresa permane?a ágil diante das mudan?as nas condi??es do mercado. Em resumo, a aplica??o diligente de fórmulas de estoque de seguran?a é essencial para uma gest?o eficaz e eficiente de estoques.

?Regularly track your inventory levels and actual demand compared to forecasts. ?Analyze stockouts and near-stockouts to identify if your safety stock is adequate. ?Adjust your safety stock levels over time based on changing demand patterns and supply chain conditions.

You should always be completing a money map of the area of items being sold and keep a record monthly. This way you can monitor was selling and what’s not perhaps a move within the retail area or a new product. The closer you study what best sells and patters that they sell in. This way you can order and know the lead times and manage from there.

Monitoring and continually adjusting your safety stock is crucial due to its dynamic nature. There is a fluctuating demand for your specific products. Seasonality of a product to the various types of transport and production timeline. It’s critical to organize by level of time to stock. This will allow more flexibility and minimize over/under stocking.

Inventory control software definitely facilitates and significantly reduces work times, however, you must have in-depth knowledge of the product and market for it to be functional, as well as constant updating of data and periodic maintenance to avoid generating future problems.

Beware when you decide to buy an inventory management software. without a proper training, understanding the concept of inventory and lack of sense of belonging you will end up with excess stock and have difficulties to find way to reduce them. One of the Internationals mining company which I joint disposed 5M USD before they sell the whole shares to locals. As I joint I see the root cause was the one I mentioned above.

Nowadays, there are many inventory software avaliable and ready to use, and many users didn't notice that many of those software have different and unique business process. Before you decide to use or buy one, you have to define your requirements clearly and get the detail from the software provider company. This is not only nice to have the inventory software but and also the technical support. Remember these 3 before you buy a software. 1. If it is Good & Cheap - it will not be Fast 2. If it is Good & Fast - it will not be Cheap 3. If it is Fast & Cheap - it will not be Good.

Inventory management software is an amazing tool when used correctly with whatever program or billing apps your company utilizes. As long as proper billing codes are input by workers/staff, your numbers will not be as skewed as if keeping inventory by spreadsheets and such. Keep up with the times and that particular job is made a ton easier.

Using inventory management software would be the much needed one due to its Automation, Real-time Tracking, Data Accuracy, Forecasting and Planning, Integration with Other Systems, Cost Efficiency, Order Optimization, ability to collaborate with stakeholders easily, Analytics and Reporting. Adding to this, the current growing trend of genAI brings intelligence and adaptability to inventory management, making it more efficient, responsive, and capable of handling the complexities of today's business environment.

You not only need continuous training and updates of the program Be able to have a live test program where you can chance inputs and data to workout if it’s your best option

Communicate and develop a partnership with your vendors. When you’re in a bind and have an inventory crunch, you will want to be a priority for the vendor. Communicating along the way with regular touch points will also ensure you are aware of any shifts in lead times or capacity constraints to account for.

These steps are missing to set the right inventory targets: 1. Identify product lifecycle status All new and obsolete (dead , non-moving, non-working) should be subject to approaches independent from historic demand patterns. 2. Determine decoupling strategy and decoupling points where you will buffer against demand volatility and leadtime variation 3. Establish your segmentation and service strategy to determine the best service levels by sku cluster 4. Run simulations about how much inventory is required to maintain that service level 5. Simulate risk, prebuild and other non-calculated inventory targets (e.g. financial stock norms) to validate and calibrate the calculated values 6. Validate against inventory policies by segment

Inventory management is not just a one time mathematical approach to calculate inventory norm but also require good understanding of different drivers of excess and shortage inventory, root causing and continuous improvement across those drivers to optimize inventory. The approach is to continuously analyze the reason for demand variability and supply variability with right inventory buffer strategy with postponement and supply network realignment to manage the variability & lead time. Apart from that plan for differentiated services level rather than one size fit approach across sku portfolio. This PDCA(Plan-Do-Check-Act) approach help to drive continuous improvement in underlying demand-supply process to optimize overall inventory.

It doesn't hurt to know your vendors and understand what their current situation is. A vendor in trouble could mean cancelled orders or delayed shipping. In either case, the variables in the model should take this into account, lengthening lead time calculations or pushing on substitute product vendors to compensate for the miss.

I agree with all the above 6 important parameters to improve the efficiency of supply chain and optimum inventory management. Like everyone I have seen and experienced exceptions when forecasting and planning seem to go haywire. In my experience I have always banked on my teams agility to take the swift decisive actions and the exceptional rapport and relationship developed with our customers and vendors. One needs to believe that everyone is working towards the same success and delivery and no one is fighting against the common objective. Transparency and inculcating collaborative effort always helped me to succeed in very dire situations as I had the customers and vendors understanding of the dynamic situations.