What is safety stock, the formula for calculating safety stock

Safety Stock (SS), also known as safety storage, also known as insurance stock, is the amount of insurance reserves (buffer stock) expected to prevent uncertainties (such as a large number of sudden orders, delivery date suddenly advanced, temporary increase in the amount of use, delivery of the wrong time and other special reasons).

Safety stock is used to meet lead-time requirements. Under the condition of a given safety stock, the average inventory can be described by half of the order lot and the safety stock.

I. Traditional formula:

Safety stock = (expected maximum consumption - average consumption) * procurement lead time

II. Statistical point of view of the formula:

Safety stock = average daily consumption * standard deviation of lead time at a certain level of service

Safety stock is generally calculated with the help of statistical knowledge of the Changes in customer demand and changes in lead time as some basic assumptions, so that in the case of changes in customer demand, changes in lead time and changes in both, respectively, to find out the respective safety stock.

Expanded:

. p>Because of the different reasons for generating them, inventories can be categorized into the following six types: cycle stock, in-transit stock, safety stock (or buffer stock), investment stock, seasonal stock, and idle stock.

1, cycle inventory

Replenishment process generated inventory, cycle inventory is used to meet the demand under certain conditions, the generation of the premise is that the enterprise can correctly predict the demand and replenishment time.

2, in-transit inventory

From one place to another place is in the transportation route of the items. Until it reaches its destination, inventory in transit can be viewed as part of the cycle stock. It is important to note that when performing inventory holding cost calculations, inventory in transit should be viewed as inventory at the point of origin of transportation. This is because items in transit cannot yet be used, sold, or readily shipped.

3, safety stock (or buffer stock)

Because of the uncertainty of production demand, enterprises need to hold safety stock or buffer stock in addition to the cycle stock. Those who hold this view generally believe that the average inventory level of the enterprise should be equal to half of the order lot plus safety stock.

Baidu Encyclopedia-Safety Inventory