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Safety Stock

The document discusses safety stock, which is inventory held in addition to expected demand to protect against stockouts during lead time. It explains how reorder points and order quantities are calculated using factors like average demand, demand variability, lead time, and desired service level. Formulas are provided to determine the reorder point and order quantity needed to maintain a given service level based on these demand and lead time parameters.

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Iwan Nova
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© Attribution Non-Commercial (BY-NC)
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410 views8 pages

Safety Stock

The document discusses safety stock, which is inventory held in addition to expected demand to protect against stockouts during lead time. It explains how reorder points and order quantities are calculated using factors like average demand, demand variability, lead time, and desired service level. Formulas are provided to determine the reorder point and order quantity needed to maintain a given service level based on these demand and lead time parameters.

Uploaded by

Iwan Nova
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Safety Stocks

 Safety stock
 buffer added to on hand inventory during lead
time
 Stockout
 an inventory shortage
 Service level
 probability that the inventory available during
lead time will meet demand
Variable Demand with
a Reorder Point
Q
Inventory level

Reorder
point, R

0
LT LT
Time
Reorder Point with
a Safety Stock
Inventory level

Q
Reorder
point, R

Safety Stock
0
LT LT
Time
Reorder Point With
Variable Demand

R = dL + zσ d L
where
d = average daily demand
L = lead time
σ d = the standard deviation of daily demand
z = number of standard deviations
corresponding to the service level
probability
zσ d L = safety stock
Reorder Point for
a Service Level
Probability of
meeting demand during
lead time = service level

Probability of
a stockout

Safety stock
zσ d L

dL R
Demand
Reorder Point for
Variable Demand
The carpet store wants a reorder point with a 95%
service level and a 5% stockout probability
d = 30 yards per day
L = 10 days
σ d = 5 yards per day

For a 95% service level, z = 1.65

R = dL + z σ d L Safety stock = z σ d L
= 30(10) + (1.65)(5)( 10) = (1.65)(5)( 10)
= 326.1 yards = 26.1 yards
Order Quantity for a
Periodic Inventory System

Q = d(tb + L) + zσ d tb + L - I

where
d = average demand rate
tb = the fixed time between orders
L = lead time
σ d = standard deviation of demand

zσ d tb + L = safety stock
I = inventory level
Fixed-Period Model with
Variable Demand
d = 6 bottles per day
σ d = 1.2 bottles
tb = 60 days
L = 5 days
I = 8 bottles
z = 1.65 (for a 95% service level)

Q = d(tb + L) + zσ d tb + L - I
= (6)(60 + 5) + (1.65)(1.2) 60 + 5 - 8
= 397.96 bottles

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