A good process executed regularly is very important. A quarterly review of safety stocks will be appropriate for many businesses and our recommended steps are shown below.
This depends on the output from three supply chain processes which should be more frequent:
- Demand accuracy should be reviewed at least once per month and if possible once per week. This must highlight the big differences between forecast and actual demand and trigger corrections to the demand plan where necessary.
- Supplier performance should be reviewed on a monthly basis and any issues with performance should trigger corrective action by the supplier.
- Customer service should also be monitored at least once per month but, as with demand accuracy, weekly checks enable faster diagnosis of business problems.
These important measures provide key inputs to the safety stock review process.
At the start of the quarterly review process Master data for each material is extracted from the ERP system and linked to the results of the three performance analysis processes during the full review period.
Service levels over the period should be reviewed first - are they still relevant? Are you over or under achieving against the targets? If under achieving then the review process is probably taking an over optimistic view of demand accuracy and this can be corrected by recategorizing materials.
The first time this is done materials should be grouped into categories - the aim is to group materials together if they share the same:
- Demand Accuracy (often these categories can be built according to ABC and XYZ classifications).
- Supplier Reliability and Lead Time (grouping by supplier or manufacturing process is often the most useful)
- Replenishment Frequency
- Order Cover period (this may come from a lot size rule or from the MOQ).
In later reviews the materials in a category should be checked to ensure their demand accuracy matches the others in their category and to ensure that other parameters are unchanged. New materials will need allocating to these categories if their demand has become stable (if not they should be in a "new" category with safety time set to cover supplier reliability).
Next check that the service level targets (quantity fill per period) are achieving the service level required. If not the targets should be adjusted.
Set the number of days cover for each category using SafetyStock ExpreSS.
The days cover for each material can then be set according to the category. This allows the expected value of the inventory and volume (cubic metres/ pallet spaces) to be calculated.
Review the results and check the value is acceptable and will fit in the available storage space. If OK the days cover for each material can be updated in the ERP system, if not then circle back to the service level targets and adjust where possible.
Finally, prioritize the potential improvement projects and note the inventory reductions that you expect to see in future reviews.