Safety Stock Optimization
Are you responsible for optimally using or reducing storage capacities in your company? If so, the following topics are likely to be on your agenda:
- How can you predict when and how much material should be in stock?
- How do you determine exactly what safety stock you need, and when?
- What is the right balance between inventory costs and customer satisfaction?
You can achieve your goals with well-thought-out stock optimization. Read this page to learn about this exciting data science use case and how it can help you reduce your inventory costs.
Content
A typical “safety stock optimization” question and solution
Problem
Stocks: In both private households and companies, many are faced with the question of how many stocks one should accumulate in order to be able to react quickly and be equipped, without hoarding too many tied-up capacities that are in danger of going bad. In companies, warehouse management deals with this balancing act, trying to ensure a smooth supply along the entire supply chain, by balancing between customer satisfaction through the ability to deliver on the one hand and storage costs on the other. Even with short-term orders, the goal is to deliver as completely and promptly as possible. How do you determine suitable safety stock quantities for individual items to avoid unnecessary storage costs and still be able to deliver for at least a certain replenishment lead time?
Solution
Forecasting methods calculate how orders will develop in the near future. For the available data, products, and materials, safety stocks and the associated levels of readiness for delivery are determined using various safety stock calculation formulas, and the most suitable ones are selected. Precise forecasts form the basis for determining safety stock in an efficient way.
The determined safety stock values are transferred to the company’s ERP system and used for further procurement and production planning. Planning can accurately be carried out based on these forecasts, and the supply chain can be optimized as a result. At the same time, it is ensured that the company remains able to deliver, and resources are used economically.
An introductory blog article about safety stocks
We would like to recommend this blog post to anyone who would like to find out exactly what safety stock is all about, how it is calculated, and what “service level” means:
Optimize safety stocks with accurate forecasts (in German)
Reading material on safety stock optimization
