The power of our simulation!

Our safety stock calculation works in the same way as a real life MRP system. One insight is that products with long replenishment frequency and lead time that is a multiple of replenishment frequency will need high safety stocks!

The example below shows a product with replenishment frequency of 4 weeks and lead time of 8 weeks (exactly twice the replenishment frequency). If supplier reliability is perfect then safety stock increases with increasing lead time as you would expect...but if the supplier has moderate reliability (in this case standard deviation of actual lead time is 1.5 weeks) then the days cover needed looks very strange!

This is because the low point of the sawtooth inventory profile is at the times when we are furthest from receiving the next replenishment. Any supply delay makes us very susceptible to stock out and the safety stock really does need to be higher to mitigate this.

The best solution is to work with your supplier to reduce the lead time by one week, then you will be a bit over stocked at the points in the cycle when the next replenishment is furthest away - if lead time of 7 weeks is feasible then days cover for an A Class product with 98% service target is 39 rather than 55!

If this cannot be done then there is some benefit to increasing the planning lead time and giving your supplier one week extra notice on firm orders. In this case action messages showing low stock or the need to expedite should be given careful attention - when the plan shows the stock going too low newly firmed PO s should be adjusted to the agreed 8 week lead time rather than the (now) 9 week planning lead time.

Where suppliers are not perfectly reliable the combination of infrequent replenishment and lead time that is a multiple of the replenishment cycle should be avoided!

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