supply chain

Safety Stock Calculation and Reducing Supply Chain Risk

The shockwaves felt from the COVID-19 pandemic have left uncertainty in the air—and shelves bare. While it’s an extreme case, panic buying left its imprint on the supply chain, leaving those behind the scenes scrambling to satisfy demand. 

The period of panic consumerism born from COVID-19 helped underscore the need for a supply chain safety net. Or, at the very least, exposed the vast potential for supply chain disruptions—and the necessity of planning for them. Safety stock, or buffer stock, does what its name implies: buffers stock supply to offset consumer demand, balance supply variance, and avoid out-of-stock situations for when disruption strikes. 

Understanding Safety Stock

In business, business as usual is a profitable status quo. Businesses want a supply that adequately reflects and, more accurately, adjusts to demand. Safety stock works as a safeguard against stockouts, which derails normal business operations and production planning if left unaddressed. 

You can think of safety stock like this: it’s an insurance against unexpected cracks in the supply chain. And these cracks aren’t COVID-19 exclusive. In fact, safety stock buffers against a number of potential supply chain hiccups and shortcomings, including lower quality product, staffing shortages, raw material and manufacturing variance, late delivery, and changes in demand.

Streamlining Safety Stock

Ever gone with your gut? Some operations managers have a penchant to do just that when they’re gauging safety stock levels. Others may carve out a flat percentage of their usual stock level, say 15 to 20 percent, to counter unforeseen supply chain events. Both of these methods eventually come up short when sorting out stock, whether that’s upfront or later over time. In fact, stock inventory issues usually arise when employing methods that lack a fine-tuned approach. 

As a rule, proper inventory management is key to ensuring a safety stock that’s worthwhile and adaptable—and to ensuring that the supply chain remains a chain, rather a pile of idle kinks. How do you go about doing this? By factoring in safety days of supply as a real metric, rather than leaving supply stock up to guesswork or gut hunches. When properly accounted for, the safety days measurement helps guarantee a safety stock that’s ample in supply and flexible in action. 

Using safety days in this way proves critical to improving stock levels and meeting variable tides of demand. And figuring out safety days of supply isn’t rocket science. To calculate production or purchasing quantities needed to achieve your desired safety days of supply, sum up forecasted demand for the period you want the safety stock to support.

Put another way: Say you have set up a product for three days of supply—your safety stock will equal the sum of the next three days of demand. Compare that with your actual days of supply to get an accurate read of what you need to meet demand.  The key is that this formula is based on expected demand, not static benchmarks. In doing so, your production or purchasing helping to thread the needle between overstock and empty shelves.

How Revere Can Help

Industries have been playing catch up since COVID-19 entered both global consciousness and the cultural lexicon. Revere Control Systems is here to provide support. Our expertise is broad enough to work in all sorts of settings, but applicable enough to account for the many nuances of your industry. Learn more about what Revere can do to streamline production and processes, connect with an expert to talk things over, and keep up-to-date on the latest courtesy of our on-demand, online resource.