Safety Stock

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  Whether it’s materials or information, if the inventory is not there when a customer wants it, chances are they will go somewhere else to find it.  Next, revenue is lost and then it gets worse and worse.  For example if inventory is not available throughput is decreased, waste is introduced and supply chains slow down.  With that being said, many traditional manufacturers and service providers use a type of inventory known as Safety Stock to solve these sometimes catastrophic issues.  In this module we will introduce you to Safety Stock. 

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While inventory and stocking extra amounts of it does not generally solve the root cause of late deliveries, frustrated customers, slow production or missed opportunities it is one of the most frequently used solutions.  In the most general sense, safety stock can help offset changes in supply and demand, avoid costly stockouts, reduce the impact of disruptions in supply, lower administrative and ordering costs, cushion against forecast inaccuracies, maintain market share and create consistency in a company's revenue.
What is Safety Stock?

• Most inventory consists of cyclical stock, or the inventory that is expected to be sold within a given period of time and safety stock. Safety stock is extra inventory that is held and used to prevent an out-of-stock situation. It serves as a buffer that protects against fluctuations in supply and demand.

Benefits of Safety Stock:

1. Protect against increases in Demand.
2. Delays from suppliers.
3. Forecast errors.
4. Replenishment failures.
5. Downtime.
6. Economic Constraints.

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Example:

• A local manufacturer was recently featured in a popular manufacturing magazine and they immediately experienced an increase in demand for their services. As the manufacturer fulfills orders, cycle inventory is depleted faster than normal.  This drastically increases the risk of a stock out.  As such the company buffers against a stockout with some extra safety stock.  Without safety stock, the company cannot fulfill orders once the regular cycle inventory is gone and this could create many problems.  

Summary:
  Safety stock is used to help meet or mitigate the risks associated with stockouts.  Organizations often hold excessive inventory as a result of safety stock which in the most general sense is held to protect against uncertainties in supply and demand.  Safety stock is sometimes referred to as fluctuation inventory.  
Challenge:

• What examples of Safety Stock can you think of?  Share your thoughts in the community, comments or upcoming assignments and receive a coupon for one of Lean Strategies International LLC's Training Courses.