Safety stock – what is it and how does safety stock work?

The larger the production company, the more acute also becomes the need to organize a work stoppage. And this one can be triggered by the shortage of even one raw material or product. Missed deadlines, penalties and delayed financial receipts generate gigantic losses. How to counteract such a phenomenon? One of the answers is safety stock!

Safety stock, or safety stock – what is it and how does it work?

Safety stock or safety stock, or safety stock in English, is the term used to describe the phenomenon of a company storing a stock of goods and raw materials in excess of current demand in case there is a shortage of these products due to external factors.

The term safety stock also means the level of safety stock expressed in numbers.

The main function of safety stock is to reduce the risk of a shortage of inventory, i.e. a shortage of semi-finished products, raw materials and packaging, and to enable the planned operation of the enterprise in such a sub-critical situation. Safety stock is supposed to preserve the plant’s ability to meet demand for goods and maintain continuity of production.

Safety stock is also maintained for uncertainty in demand and supply or production efficiency. Safety stock acts as a buffer stock at such times when, for example, the level of sales of a commodity exceeds that projected, or when there are unplanned delays in the delivery of raw materials or products.

Why take care of safety stock?

Maintaining an optimal level of safety stock is an effective strategy – one that every manufacturing company needs. Even if the company has already developed an optimized forecasting strategy, the probability of consumption levels getting out of control is very real – market changes today are becoming more and more dynamic, but also an increasing number of industries are already recording the phenomenon of seasonality of sales.

The estimated time of delivery of raw materials or products requires an additional calculation, which is the margin of delay, which can result from logistical problems or difficult weather conditions or completely different, random situations. At this time, the function of safety stock is to meet demand until delivery, that is, to restore standard inventory levels.

Stopping a production line due to lack of inventory, also known as inventory shortage costs, is one of the biggest concerns of any company and can lead to gigantic losses, often impossible to make up.

Adequate safety stock is therefore indispensable – it prepares the company for unforeseen events, and gives greater certainty.

What are the risks of a safety stock?

On the other hand, as common a strategy as maintaining safety stock, is also to try to reduce this level of safety stock. A large amount of safety stock means, first, frozen money, and second, high storage costs. Materials stored for too long may also deteriorate or lose their properties and the safety stock will not be used – the company will lose out.

However, it cannot be said that safety stock is an unnecessary cost – the cost of stopping the production line (and thus lack of sales and financial penalties for failure to meet deadlines) is incomparably higher, so the basis of safety stock is its proper optimization.

How to calculate the needed level of safety stock?

Safetystock is calculated based on mathematical formulas that take into account various external factors (such as demand variability, delivery time and the company’s level of customer service).

Safety stock is a strictly determined percentage of handling stock, and is also derived from sales data and forecasts.

To calculate safety stock, more and more companies are using advanced information systems: automated and based on new technologies such as artificial intelligence and machine learning.

Where to store safety stock – safety stock?

To reduce the cost of storing safety stock, but not only it – also, for example, auxiliary or consumable materials, tools and health and safety items – it is worthwhile to engage customized solutions. One of them, for example, are smart warehouses: vending machines from ASD Systems. They accommodate products of different sizes, and thanks to their configurability, they can be adjusted to current needs.

  • Facilitate warehouse releases: self-service distribution available 24 hours a day, regardless of the shift. The work of several procurement personnel is performed by a single machine. The manager has access to real-time inventory levels and sets alerts for minimums.
  • Limit product consumption. Each product can be downloaded only by the person authorized to do so and in a time-defined number. Pick limits and access restriction can reduce procurement costs by 0 50% and allow for a balanced, informed procurement policy.
  • Automatic records of releases. Real-time record-keeping not only makes the work of procurement officers easier, but also eliminates mistakes and makes it easy to settle accounts between departments or sectors in the company. The application for automatic dispensing machines allows you to create useful statements and reports.
  • Warehouse under constant control. Automated dispensers for health and safety, materials, tools or production stock identify employees, so the manager has the flow of all products under control, and has access to all the necessary data to optimize the company’s warehouse policy.

FAQ:

What is safety stock?

Safety stock is a safety stock, i.e. a stock of goods and raw materials stored in case there is a shortage of handling stock, which can cause, for example, variability in demand, an increase in average demand or changes in the delivery cycle (e.g. extended lead time for material delivery).

Why is safety stock organized?

Safety stock is organized to eliminate the negative consequences of the lack of production stock – for example, downtime in the work of the enterprise, and thus: loss of production continuity and large financial losses.

How to use vending machines in an enterprise?

Vending machines are used in an enterprise to store various products, including, for example, safety stock, auxiliary materials, health and safety items and protective measures or tools.

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