Rules Based Safety Stock

Safety stocks are too often set based on "gut-feel" or simple rules of thumb like "four weeks supply" without sufficient consideration to differences among products from a variability, shelf-life or profitability perspective. The result is invariably that highly profitable growth products tend to carry less then optimum safety stock while products with low profitability heading for the end of their life cycle carry far too much.

But thought-fully designed rules can change this.

Let’s play the  "safety stock game" and compare products under "everything else being equal"-scenarios and see where it takes us.

• If one product has high margin and another low margin, then there should probably be a higher safety stock on the high margin product.
• If one product has long shelf-life and another short shelf-life then there should probably be a higher safety stock on the long shelf-life product.
• If one product has low demand variability and another has high demand variability then there should probably be a higher service level on the predictable product.
• If....

Once you have played the game with the key criteria from your supply chain we recommend that you use AdapLink to automatically calculate the required safety stock level and (potentially) update your ERP system