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The basic Safety Stocks scenario follows a Continuous Review Policy: quantities to order are fixed. Safety Stock with EOQ (Economic Order Quantity) The distribution of your products’ lead times looks like this:īecause most of the time you cannot predict when those issues happen, you need safety stock to cover supply uncertainties. Then, your lead times highly varies, with some deliveries arriving early and others arriving much later than your average lead times. You have different supply hazards: missing raw materials, higher production lead times than expected, natural disaster, third-party transportation problems, customs clearance delays, customer demand, or even IT issues. Let’s take the following supply chain example: you produce in China and you deliver in France, with an average lead times of 40 days. Picking/Packing time in the warehouse or factoryĪny hazard over one of those factors directly impacts the lead time, and so the risk of shortage or overstock.IT confirmation delay / Purchase Order delays.Indeed, there are many factors impacting the total lead time: There are also supply hazards: specifically, lead time uncertainty.
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You will probably have a better forecast quality on toilet paper than on the umbrella. You might have a stronger safety stock on the umbrella to cover higher risks of shortages and lost sales.Ģ) Lead Time uncertainty (or supply uncertainty) Products have different levels of demand uncertainty.įor example, in every supply chain there are stable products such as toilet paper, and others much more uncertain, such as umbrellas – which are sold only during rainy periods. You need a safety stock to cover yourself against two hazards or uncertainties: demand and lead time. The safety stock (or buffer stock) is the stock level that limits stock shortages due to unforeseen events (forecasts not in line with demand, longer than expected supply time, etc…) and helps to smooth out your supply chain. Download the Safety Stock calculator Safety Stock Definition