Safety Stock: Which Method Is Right for You?

  • by Saroj Tripathi, Principal Consultant, Bristlecone, Inc. (August 2009)
  • September 2, 2009
Learn about various methods of safety stock supported by standard SAP Advanced Planning & Optimization (SAP APO), including a new method that provides a more cost-effective way of managing safety stocks in a supply chain.
Key Concept

Supply chains are exposed to multiple uncertain influencing factors, such as demand upsurges or production disruptions. Safety stock is used to protect supply chains against such factors. The term safety stock can be used to describe physical units or time buffers. Essentially, there are two types of safety stock or buffer methods: quantity buffers and time buffers. Quantity buffers involve producing and storing extra physical quantities to meet a demand upsurge or any other supply chain disruptions. Time buffers involve building a gap between the demand and supply in order to be better prepared.

Disruptions in the supply chain come from many places. They could be from the demand side – such as demand upsurge, cancellation, new product introductions, or product mix changes – or the supply side, such as fluctuating lead times, production shutdown at the vendor, or production ramp-up. Wherever they come from, these disruptions require companies to be able to meet the demand without compromising customer service levels. The only way to combat these disruptions is to have safety stock (Figure 1).

Saroj Tripathi

Saroj Tripathi is the principal consultant with Bristlecone, Inc. As principal consultant, he is responsible for designing business processes and architecting solutions involving different SAP applications. His experience runs across many industries but the high tech, semiconductor, and CPG industries have been his prime focus for the last nine years. Saroj holds an MBA degree from the prestigious Indian Institute of Management, Bangalore, and is a certified PMP.

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