Smart manage of safety stock

The purpose of safety stock is to avoid stock-outs, whereby a product can’t be supplied for sale, its delivery after purchase is unreasonably held up, or a component isn’t available during manufacturing.

Why use safety stock?

Stock-outs negatively affect business results in different ways. Safety stock, or applying safety margins, is a buffer of inventory held to protect against stock-outs. Safety stock can be used if:

• Demand exceeds a sales forecast
• Production output is less than planned
• Supply chain disruption results in long lead times
• Reservation to stock levels to prevent penalties in marketplace sales
• Other reasons the retailer prefers

Holding excess inventory can lead to significant losses through wastage, as many types of inventory can spoil or devalue over time like food. While others can break, go out of fashion, or become redundant. Not every product will require a buffer of safety stock.

How OIL handles safety stock

In OIL’s inventory management module, safety stock can be used to set minimum stock levels for products. On every product a safety margin can be applied, this can be setup by simple rules or be exchanged via stock level updates.

To work out the minimum stock level for each product, or SKU, it is important to calculate the reorder point. This is a level of stock that is calculated by factoring in both the safety stock level and the average quantity used between ordering stock and it arriving at a stock location.

OIL can play a role in providing input for replenishment processes. OIL always allocates sales orders against the possible candidate stock (inventory) locations to select the best candidate to ship from.