Safety Stock Policy and Formula for Eastern Hemisphere with Process steps
Safety stock simply is inventory that is carried to prevent stock outs. Stock outs stem from factors such as fluctuating customer demand, forecast inaccuracy, and variability in lead times for raw materials or manufacturing.
Some operations managers use gut feelings or hunches to set safety stock levels, while others base them on a portion of cycle stock level.
While it is easy to execute, such techniques it generally result in poor performance, excess Inventories and poor management of manufacturing capacity.
In the Eastern Hemisphere we will use a sound, mathematical approach to safety stock; this will not only justify the required inventory levels to business leaders, but also balance the conflicting goals of maximizing customer service and minimizing inventory cost by taking advantage balanced SS and leveraging common stock at the Hub (Dubai) We are banking on the fact that not all tools will break down at the same time in the region.
Our SS (not JDE) inventory carried to prevent Stock out, calculation will be based on the following formula (SS=Z* √(PC/T1)* σD) where
Z = Desired service level and for the region we would like to use 98% which equates to 2.05
PC = Total lead time from the Hub (Dubai) Variable due to distance from Hub
T1 = Time used for Standard deviation Calculation (1 year)
σD = Standard deviation of demand to come up with SS number
This formula has been used in the calculation in the attached spread sheet and macro to calculate suggested (JDE SS). Regional Operations Inventory controllers have the option to change the Z score from 98% = 2.05 to 99% = 2.33 or 99.9% = 3.09. (Note changing this desired level will let you stock more than needed inventory)
To calculate stock level and Minimum Order Quantities for JDE we will use the following 4 figures below
SS (this is to cover any spike in demand based on the formula above
Lead Time Demand (from the usage report average plus operational intelligence)
SS to load in JDE (ss in 1. plus Lead time demand 2.)
Minimum Order Quantity (result of 2)
See attached spread sheet:
Process steps
Follow Current SS Policy:
Calculate period of Usage = COUNT (Line*:W*)
Filter – Period of Usage less than 2 to SS of zero
Copy the result spread sheet into the Macro and run the macro
Filter – MPF (E**), (C**) & (QF**) where need and change MOQ ,min. Order Quantity of 3 months
All other parts will follow SS (SS+LTD) with min order quantity = LTD
Please Note Change the LT in the Spread Sheet to suit your Region. Logistics team from Dubai can help you determine that.
Thanks for your effort
Safety Stock Policy and Formula for Eastern Hemisphere with Process steps
Safety stock simply is inventory that is carried to prevent stock outs. Stock outs stem from factors such as fluctuating customer demand, forecast inaccuracy, and variability in lead times for raw materials or manufacturing.
Some operations managers use gut feelings or hunches to set safety stock levels, while others base them on a portion of cycle stock level.
While it is easy to execute, such techniques it generally result in poor performance, excess Inventories and poor management of manufacturing capacity.
In the Eastern Hemisphere we will use a sound, mathematical approach to safety stock; this will not only justify the required inventory levels to business leaders, but also balance the conflicting goals of maximizing customer service and minimizing inventory cost by taking advantage balanced SS and leveraging common stock at the Hub (Dubai) We are banking on the fact that not all tools will break down at the same time in the region.
Our SS (not JDE) inventory carried to prevent Stock out, calculation will be based on the following formula (SS=Z* √(PC/T1)* σD) where
Z = Desired service level and for the region we would like to use 98% which equates to 2.05
PC = Total lead time from the Hub (Dubai) Variable due to distance from Hub
T1 = Time used for Standard deviation Calculation (1 year)
σD = Standard deviation of demand to come up with SS number
This formula has been used in the calculation in the attached spread sheet and macro to calculate suggested (JDE SS). Regional Operations Inventory controllers have the option to change the Z score from 98% = 2.05 to 99% = 2.33 or 99.9% = 3.09. (Note changing this desired level will let you stock more than needed inventory)
To calculate stock level and Minimum Order Quantities for JDE we will use the following 4 figures below
SS (this is to cover any spike in demand based on the formula above
Lead Time Demand (from the usage report average plus operational intelligence)
SS to load in JDE (ss in 1. plus Lead time demand 2.)
Minimum Order Quantity (result of 2)
See attached spread sheet:
Process steps
Follow Current SS Policy:
Calculate period of Usage = COUNT (Line*:W*)
Filter – Period of Usage less than 2 to SS of zero
Copy the result spread sheet into the Macro and run the macro
Filter – MPF (E**), (C**) & (QF**) where need and change MOQ ,min. Order Quantity of 3 months
All other parts will follow SS (SS+LTD) with min order quantity = LTD
Please Note Change the LT in the Spread Sheet to suit your Region. Logistics team from Dubai can help you determine that.
Thanks for your effort
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