![]() ![]() Others will have higher variability and a wider histogram. Some products will have little variability and thus a very narrow histogram. ![]() This bell-shaped curve is typical of many demand patterns.įigure 1: An example histogram of weekly paper demand throughout 52 weeks There is a similar pattern on the other side of the average: Demand was 115-125 rolls for eight weeks and 105-115 rolls for five weeks. As actual demand extends higher above average, the number of weeks that actual demand was within that range decreases. Then, actual demand was 135-145 rolls for eight weeks and 145-155 rolls for five weeks. Actual demand was very close to the average -130 rolls per weekly production cycle - for 12 weeks of the year, when the actual demand was 125-135 rolls. In this case, the histogram plots demand for rolls of a specific grade of paper made on a paper-forming machine throughout 52 weeks. However, determining the appropriate safety stock level should be a bit more nuanced because it depends on supply and demand variability.Ĭalculating the appropriate safety stock level in the face of variable customer demand requires some basic statistics knowledge.įigure 1 is a histogram, a plot showing the number of cycles at which each demand range occurs. Some inventory managers use rules of thumb to govern safety stock amounts, such as the guideline that safety stock levels should equal 10-20% of cycle stock or two weeks’ worth of coverage. This type of stock, also known as buffer stock or reserve stock, is intended to reduce the frequency of stockouts and, in turn, enable companies to provide better customer service. The task for inventory managers is to calculate the appropriate amount of safety stock so that there’s enough to cover all situations without overwhelming the storage area or working capital budget.Īccording to the APICS Dictionary, safety stock is inventory that is carried to protect against forecast errors, as well as fluctuations in demand or supply. ![]() When it comes to inventory management, safety stock helps fill the gap when cycle stock is insufficient. ![]()
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