Key drivers of safety stock 1 Service target 2 Variability Std deviation of

Key drivers of safety stock 1 service target 2

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Key drivers of safety stock:1. Service target2. Variability: Std deviation of demand3. Lead time4. Review period
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Safety Stock Example: Europe Option ABSafety stock = Safety factor *Std. Dev of exposure demand(Lead time + Review Period)*Std. Dev of Demand Mean weekly demand3653Std Dev of weekly demand2702Lead time (weekly) 5 Review period1 Std Dev of exposure demand6619Safety factor1.89Safety stocks12536Safety stock in weeks of supply3.4
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Longer Term AlternativesAlternativesDrivers AffectedAir shipmentEuropean factoryUniversal modelProduct line restructuringImprove forecast methodShorten review periodMore inventoryReduce lead-timeReduce lead-timeReduce variance Less headache Reduce varianceReduce review periodIncrease service
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Factors to ConsiderAir transport economics … freight and frequency. Economies of scale for new factory in Europe.Tax implications for new factory.Investment opportunities.What is the key driver to safety stock?Can forecasting be improved significantly?Marketing implications for product line restructuring.Cost of inventory (holding, obsolescence …)Feasibility of universal optionSupply sources of localization materials.Engineering requirement of localizationValue of risk pooling.
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Evaluating the AlternativesAlternatives EffectivenessAir shipmentEuropean factoryUniversal modelProduct line restructuring Improve forecast method Shorten review period More inventoryVery expensiveVolume not high enoughExcessive costCannot affordA dreamLose transport economicsDeeper in the hole
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DC – Localization StrategyCurrent: Factory-LocalizationMfgDCcustomersDC-LocalizationMfgDCcustomers
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