Safety stock is a term used in logistics to analyze a level of additional actions that are carried out to reduce the risk of stockouts. given the possible uncertainties in supply and demand. One possible reason for this shortage may be the shortage of packaging, products or raw materials.
Adequate levels of security allow companies to focus their objectives in a certain direction. In a way, the safety stock is a way to prepare for times when a certain item may be in short supply. It serves companies to satisfy consumer demand even if any of the following situations arise:
- Excessive and unforeseen growth in the demand for a certain item.
- Faults in the production phase.
- Delays by Suppliers or suppliers of the material.
- Workers' strike.
Calculation of the safety stock
To calculate the safety stock, a series of factors must be taken into account, such as:
- Order delivery time.
- Demand for safety stock.
- Standard deviation of the delivery time of orders.
- Standard deviation from demand.
- Desired service rate.
If you want to know exactly what your company's safety stock is, use the safety stock calculator with which you can get the result automatically.
The amount of safety stock can also influence the development of a company. When the figure is excessive, it can generate high inventory maintenance costs. In addition, items that are stored for a long time can deteriorate, break or expire. For its part, a low safety stock can lead to a loss of sales and therefore a higher percentage of losses. The key to the safety stock is to find a balance.
In summary, the safety stock is a buffer to protect companies from shortages caused by poor planning, both in terms of management and material. The safety stock is one of the most important concepts in the inventory control of the companies.