Safety stock

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Safety stock

Due to various factors, there is an element of randomness involved in customer demand and sourcing supply every period. To prevent stock outs (and the subsequent loss of sales), a quantity of product known as safety stock is kept in the inventory as a buffer. Determining this safety stock value is the primary role of Safety Stock Optimization. See Safety Stock Optimization for additional information.

In Network Optimization, Safety Inventory can be calculated based on days of supply (DOS) using the Safety Stock, DOS Window and DOS Planning Lead Time columns in the Inventory Policies table.

Safety inventory example

Assume you have a monthly period model. Demand occurs in only two periods:

1500 units in June (Period_006)
3100 units in July (Period_007)

In Inventory Policies, Safety Stock is defined as:

Safety Stock = 40 DOS

Scenario 1: Both DOS Window and DOS Planning Lead Time are null or zero.

Safety Inventory is calculated as follows:

Period_006: Safety Inventory	= (Flow Units in Period_006 / length of Period_006) * Safety Stock DOS
	= 1500 / 30 * 40 = 2000
Period_007: Safety Inventory	= (Flow Units in Period_007 / length of Period_007) * Safety Stock DOS
	= 3100 / 31 * 40 = 4000

Scenario 2:DOS Planning Lead Time is NOT null or zero. (DOS Planning Lead Time = 30 DAY)

In each period, we calculated the Safety Inventory looking ahead 30 days.

Safety Inventory is calculated as follows:

Period_006: Safety Inventory	= (Flow Units in Period_007 / length of Period_007) * Safety Stock DOS
	= 3100 / 31 * 40 = 4000
	When looking ahead by 30 days, we are in July.
Period_007: Safety Inventory	= (Flow Units in Period_007 / length of Period_007) * Safety Stock DOS
	= 3100 / 31 * 40 = 4000
	When looking ahead by 30 days, we are still in July.

Scenario 3:DOS Window is NOT null or zero. (DOS Window = 40 DAY)

Safety Inventory is calculated as follows:

Period_006: Safety Inventory	= Safety Stock DOS * ((30 days from Period_006) * (Flow Units in Period_006) / (length of Period_006) + (10 days from Period_007) * (Flow Units in Period_007) / (length of Period_007)) / DOS Window
	= 40 * ((30 * 1500 / 30) + (10 * 3100 / 31)) / 40 = 40 * 2500 / 40 = 2500

Scenario 4: DOS Window = 40 DAY and DOS Planning Lead Time = 30 DAY

Safety Inventory is calculated as follows:

Period_006: Safety Inventory	= Safety Stock DOS * (31 days from Period_007) * (Flow Units in Period_007) / length of Period_007) + (9 days from Period_008) * (Flow Units in Period_008) / (length of Period_008)) / DOS Window
	= 40 * ((31 * 3100 / 31) + (9 * 0 / 31)) / 40 = 40 * 3100 / 40 = 3100

For the safety stock calculation at a stocking site, the Flow Units from both InterSite Flows and Customer Flows are considered.

Last modified: Wednesday May 15, 2024

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