Safety Stock to Buffer Against Uncertainty

7/26/21 2:30 PM

safety stock keeps your production running smoothlyIn manufacturing, there can be a lot of uncertainty surrounding the demand signals. Uncertainty in the quantity of an order can occur when the master production schedule is increased or decreased to reflect changes in customer orders that were not anticipated. This uncertainty can be detrimental to the success of your business as you can be left with either too much or too little supply to fulfill the incoming demand. 

As MRP uses the master production schedule to determine net resource and material requirements, a safety stock can be used to provide a buffer against variations in demand and allow manufacturers to fulfill customer demands in a timely manner. 

 

What is Safety Stock?

Safety stock can be defined as the extra inventory that is carried in order to reduce the chance of a stock out due to demand variability. While it is typically not recommended to hold a large excess of materials, a safety stock can help you manage your inventory, ensure that demands are being met, and minimize costs incurred by carrying excess inventory. 

 

Why Do I Need a Safety Stock?

Simply put, having a safety stock reduces your chances of experiencing a stock out and having unhappy customers. It helps prevent disruptions within your production facility in occurrences where you wouldn’t be able to receive materials to fulfill your customer orders. 

In certain industries, stopping production unexpectedly due to material shortage can be extremely costly. In the automotive industry, the average cost of downtime is $22,000 per minute. Having a safety stock will provide you with a buffer to allow you to continue with production until you are able to receive additional materials and mitigate the losses that would occur.. 

 

Focus on Variability

A common challenge for many manufacturers is to determine how many units they should keep in their safety stock. This can be because holding excess inventory is not feasible due to space limitations or due to high inventory holding costs. 

As such, manufacturers should focus on items that have a high amount of inconsistency in consumption. Items that have a consistent consumption pattern can rely on forecasting strategies to determine inventory requirements without needing a buffer. 

 

Safety Stock and PlanetTogether APS

PlanetTogether’s Advanced Planning and Scheduling system allows you to specify a safety stock for each item and sub-component. If the on-hand quantity of the item falls below the safety stock quantity, the Inventory Plan within PlanetTogether will display a warning to alert the material planner and/or scheduler that additional material is required. 

 

I have actually been able to reduce on-hand Raw Materials significantly, and it’s interesting. The observation is that I tend to cut it too close, but somehow we never run out! Folks have been used to over-buying to “be safe” for so long, that following the Inventory Plan (MRP) makes people nervous, but again, I never have run out, so I stand on that. I have had to rush in materials due to a surge in unplanned orders resulting in raw material demand, but I have those networks set up, so no biggie.

CHUCK DIPIETRO, DIRECTOR OF PROCUREMENT & PLANNING, BEMA INCORPORATED

 

In addition, PlanetTogether’s APS software allows you to input replenishment minimums and maximums to trigger the system to generate work or purchase orders when the on-hand quantity falls below the minimum value. For example, if you want to keep 500 units of a certain item, you could set the replenishment minimum value to 500. Then, when the on-hand quantity falls below 500 as the inventory is allocated to production orders, MRP will automatically create jobs or purchase orders to increase this quantity to the maximum quantity specified.

 

Advanced Planning and Scheduling (APS) Software

Advanced Planning and Scheduling Softwares have become a must for modern-day manufacturing operations as customer demand for increased product assortment, fast delivery, and downward cost pressures become prevalent. These systems help planners save time while providing greater agility in updating ever-changing priorities, production schedules, and inventory plans. APS Systems can be quickly integrated with an ERP/MRP software to fill the gaps where these systems lack planning and scheduling flexibility, accuracy, and efficiency.

With PlanetTogether APS you can:

  • Create optimized schedules that balance production efficiency and delivery performance
  • Maximize throughput on bottleneck resources to increase revenue
  • Synchronize supply with demand to reduce inventories
  • Provide company-wide visibility to resource capacity
  • Enable scenario data-driven decision making

The implementation of an Advanced Planning and Scheduling (APS) Software will take your manufacturing operations to the next level of production efficiency by taking advantage of the operational data you already possess in your ERP system. APS is a step in the right direction of efficiency and lean manufacturing production enhancement. Try out a free trial or demo!

Related Capacity Planning Video

 APS Resources

Topics: materials planning, Demand planning, inventory planning, Inventory Management, Safety Stock

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