Are Your Safety Stock Levels Optimal? Match Your Method with APO Supply Planning Methodology

  • by Wolfgang Eddigehausen
  • September 1, 2003
SAP APO provides two methods for dealing with safety stock--the stock that you keep on hand in the event that you do not have enough material to deliver on orders. They are the Basic and Extended Safety Stock Methods. Each is designed for a specific supply planning methodology. Misalignment between the APO's safety stock methods and a company's supply planning methodology can result in poor management of your safety stock. This article shows how each APO method calculates safety stock and in which situations you use each.

Companies usually keep safety stock as insurance against situations where they do not have enough material to deliver on time due to unexpected peaks in demand or late delivery from a supplier. Every manufacturing company must dip into its safety stock sooner or later, but many companies do not keep enough safety stock to cover this type of event, or keep more safety stock than is required. Also, the chosen safety stock method might be misaligned with the supply planning methodologies available in APO.

I will show you how to make the right decision regarding which method to use, and how to customize it to your business requirements. First, I'll present an overview of APO safety stock methods, showing how they might be used with a planning horizon of up to six months planned with Supply Network Planning (SNP).1 Then, I'll describe the criteria APO uses to define safety stock and show you all the possible ways that APO can calculate safety stock. Finally, I will tell you how the macro at the heart of the APO safety stock calculations works.

Wolfgang Eddigehausen

Wolfgang Eddigehausen is a highly experienced expert in the areas of business process design, re-engineering, and user adaption, as well as process realization in complex SAP-centric environments. He has experience in solution and enterprise architecture and project management (PRINCE2 certified) domains defining enterprise capabilities with a focus on delivering effective and efficient solutions to organizations. Wolfgang's industry knowledge includes public sector, utilities, mining, distribution, general manufacturing, process and steel industries, and consumer goods.

In most roles his task is not only to architect a solution but also to evaluate and define strategic options with a focus on end-to-end solutions rather than systems. This also includes strong emphasis on the user acceptance through an innovative user experience and mobility enablement.

His career includes successful participation and management of projects in Australia, Europe, India, Japan, Singapore, South Africa, Taiwan, and the US. These projects required interaction with all levels of an organization, from the shop floor or office through to the CxO level. Throughout his career, Wolfgang has put emphasis on a holistic approach bringing together people, processes, information, and systems in project management, architecture, and implementation roles.

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