Managing safety stock

From the above sections, safety stock level somehow can be calculated (though it remains many limitations), the problem of how to manage them arises. As a consequence, some of the papers focus on this issue and provide recommended guidelines of where to position, how to dimension and when to replenish safety stock. The study suggests that safety stocks kept to face demand uncertainty should be positioned on pull managed items, which is defined as items whose consumption is connected in a straightforward manner, i. e. pegged, to a forecast demand and does not refer to a stock replenishment.

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Positioning safety stocks on push managed items can reveal itself to be expensive for companies either because these items are customized or they are hard to keep (e. g. large-size or fragile products, perishable goods, etc). Hence, safety stocks are to be placed on items in pull with the market and this allows the manufacturing system to react on time whenever a forecast error occurs. As for dimensioning, the study shows that safety stock are proportional to the cumulative lead time to avoid stock-out on the lower-level push managed items.

Interestingly, there is trade-off in replenishing safety stock. On the one hand, replenishment orders can be released as soon as safety stocks are withdrawn, so as to guarantee the appropriate service level of the company, but this introduces nervousness into the production plan. On the other hand, safety stocks can never be replenished so as to smooth down MRP nervousness, but this runs a high risk of stock-out. It is obvious that the later case does not fit real-life, however, the key point of these two cases lie in the combination of two scenarios to fit the firm’s policy as well as optimum safety.

In short, all major aspects of safety stock have been presented and they appear to be useful for managers in coping with uncertainty in MRP environments. Most of the research papers agreed on the fact that safety stock reduces the adverse impact of forecast inaccuracy on the production schedule, because extra items are available to respond to unexpected increases in demand. More significantly, in a multi-level product structure managers should keep safety stock at the end-item level.

If safety stock “absorbs” forecast inaccuracy at the top level of the product structure, it will prevent such inaccuracy form affecting the schedule for the lower level items as well. However, the magnitude or the size of safety stock that affects MRP performance. A high stock level could improve the stability of the MRP without degrading customer service but incurs high inventory holding cost. Low stock level increases the nervousness in production plan and sometimes cannot response quickly to the changes in demand yet it incurs low inventory holding cost.

As a result, safety stock plays a vital role in evaluating MRP performance in terms of customer service, total cost and schedule stability. One of the articles on safety stock has discussed an attention-grabbing and interesting issue of how different methods of establishing safety stock affect MRP system performance. In fact, many authors have investigated the impact of safety stock on the performance of MRP system (as discussed in the previous section) but not many have investigated alternative methods of establishing safety stock in MRP systems.

Since there are several ways of setting safety stock, it would be useful to evaluate how these methods. The result of this research shows that since various methods (in this study, 3 methods were examined) require different parameters or different method of calculating the same parameters, they produce different safety stock level. One method significantly influences total cost while others may significantly influence schedule instability or service level. All papers on safety stock have their own values to some extend. They are all trying to look into one among wide variety of problems with regards to safety stock.

The results from these studies were successfully applied in the real world at certain conditions and some of them helped to orient future researches. However, most of the studies focused on figuring out safety stock for end-item level, not for lower level items. Low level items are usually not required safety stock under MRP system; nevertheless there are many contingent factors that call for the need of using safety stock. It is the case of late delivery or fabrication or assembly times are longer than expected or a bottleneck process.

As a consequence, the use of safety stock for low level items is necessary to maintain smooth operations. In addition, with the aim of achieving research results with wider application, assumptions should be made to be more realistic and practical. Moreover, studying on safety stock should not be too model or mathematical-oriented, which is useful in theoretical analysis yet usually complicated, rather they should concentrate on helping managers solve three big problems. Literature reviewing is truly helpful for me to obtain better understanding on the topic I am interested in, safety stock.

Through these research papers, I have gained valuable knowledge beyond the textbook about all the uncertainties and difficulties inherent with safety stock. Some papers successfully developed models to determine safety stock level and use examples of real companies to illustrate their practicality, which turns out to be very impressive to me. I did realize that all the issues discussed in these papers are very close to what we have been learning but the worth-mentioning point through this literature review is that authors have helped me to find out the links between discrete topics and safety stock, their interrelation and interaction.

This is extremely important for any students so as to understand a problem more thoroughly and profoundly. Yet I faced problems in perceiving complex models (safety stock model, base stock model, etc) in these researches and some papers approaching the topic with mathematical modeling is harder to comprehend than other methods such as simulation modeling. In conclusion, though there remain some difficulties in understanding these research work on safety stock exhaustively, it is offset by providing me a broader and deeper view in dealing with safety stock.