Read this article. It concludes by suggesting that errors in ordering safety stock can be affected by costs, time, and human error. What other factors should a company consider when ordering safety stock to avoid uncertainty?
Inventory is always a big concern for any organization. Whether it is overstock or understock, which occurs often times, becomes a headache for managers. Therefore Inventory is regarded as liability in Supply chain Arena, as it bears a significant business cost. In 2008, firms operating in the United States spent $420 billion to maintain inventories valued at almost $2 trillion. In a survey of 190 producers, distributors and retailers, most of the respondents reported that improving their service level was the primary goal of their inventory management. In addition to that, stocking sufficient inventories, low storage costs which are usually influenced by stock rates – have to be ensured. To retain the balance, Safety-stock has to be maintained in order to satisfy requirements even when parameters such as the demand, replenishment times and replenishment quantities are volatile.
Safety stock is that point, where the user finds a comfort zone between overstock and understock situation. It is defined as inventory that absorbs various differences between supply and demand. Traditionally, safety stock is Safety inventory protects against inventory uncertainty by ensuring there is enough product available to maintain desired service levels. According to Haddley, Three main elements give rise to the differences between planned inventory and actual inventory levels:
And of course there could be many reasons causing inventory variability including but not limited to Procurement planning, Production and logistics activities etc.
Objective: The objective of the paper is to study the variables considered in the existing literature to determine safety stock and look for other areas that could be considered. Also, look for more comprehensive way to derive safety stock.
Research question: Safety stock is directly related to Demand of products. In an uncertain scenario, organizations has to forecast the demand. Besides, after forecasting, Organizations has to divide the forecasted data into acceptable quantity of orders that is also economical according to the organization resources. Economic order quantity (EOQ) is the one of the acceptable solutions for that. Therefore, we would like to include this methods into safety stock calculations and understand the applications.
And so, our question is: Are inclusions of (a) Forecasted Demand (b) forecasting error and (c) EOQ data could help to determine Safety stock more inclusively and accurately?
Implications: This paper will try to come up with a comprehensive safety stock model that could be used in uncertain demand scenario determination when mutually dependent variables are considered.