Safety stock is not a secret stash of material, well hidden under a classified door – with the single key being held close to the heart of the Logistic Manager – only to be taken out to light when all the other non-safe stocks run out! But rather it is a defined quantity of material which needs to trigger the re-fill (or re-order) – always in close connection with the transportation lead-time! Let us look today at two other golden rules that need to be respected when defining the Ss – and finally draw some conclusions.
Rule #5 – Transportation lead-time is essential!
Although being a very simple and useful tool, it is too often wrongly used, causing confusion, material shortage or overstock. The transportation lead-time is a fix data, expressed in days or weeks – that is essentially linked with the supplier location. For one particular supplier you might need to figure out several logic for the various materials purchased, but the transportation lead-time is always the same!
Generally speaking – the various Transportation lead-times* fall under these categories:
i) Local suppliers – these are the suppliers within a range of about 75-100 km. These are the nice to have providers which can supply goods from one day to another. (In an ideal world, one in which the Logistics Manager will only plan and supervise, all suppliers of bulky and expensive material will have a shipping point within 100 km radius. But I am afraid when that day will come, logistics will be boring…). Transportation lead-time – 1 day.
ii) Regional suppliers – radius 100-500 km. These are the suppliers which can supply goods in max 2 days (always counting a regular or standard shipping method). Transportation lead-time – 3 days.
iii) Continental suppliers – the suppliers that are within a distance from 500 km – to the limits of the continent. In this case you might want to consider two steps – from 5 to 7 days.
iv) Overseas suppliers – though you might be tempted to be abundant in this case, but caution is one thing and exaggeration is a whole different walk in the park. Setting 7 weeks instead of a 4-5 weeks transit time might send your stocks ballistic and you wouldn’t even notice it until it’s too late. Ponder it carefully, and again fear the one set-up for all! Consider 4 wks for North America (Mexico/US/Ca), 5 wks for South America, 2-3 wks for the North of Africa (Egypt/Morocco/Tunisia, etc), 4 wks for South Africa, and so on. And yes – 5-6 wks top for Asia (Japan/China/India/Taiwan etc).
Rule #6 – Judge by commodity!
If your inventory is already defined in commodities, then hurray for you! If not – put that engineering mind to work and do it yourself! The bottom line is that Ss always works in mysterious ways, and one mystery is how different commodities act differently in real life. Take fasteners for example: you can never have enough screws, nuts, bolts, washers, rods and rivets. So don’t even invest much time – just set up a Ss equal to your two-weeks consumption, and get on with it! (Yes – this is an easy one!)
Obviously – there are more than one commodities out there – and you might manage everything form electronics (PCB’s or micro-switches) to ADR materials and perishables if working in FMCG. Whatever your inventory breakdown is – you can always set aside the peanuts from nuggets and focus on those costly items out there.
A final word
I have spent an awful lot of words on what to consider when defining the right Ss for your inventory – and that is because it is of crucial importance to identify and map the variables if you want to job well done.
At the end of the day – you need to look at all your inventory (obviously on a spreadsheet, there is no other way since God created Excel in the garden of Office) – gather the basic data, look at the informal facts (like supplier flexibility), and set up that Safety level. A robust and well-defined Ss will save you from lots of headaches and give you just enough elasticity to handle sudden increases, truck delays, major astrophysics catastrophe or supplier backlog.
However, the fact that you have gone so far – it does not mean that all your job is done for now comes the next mission – how to keep your stock figures reliable? Coming soon!
*I had considered as an assumption that your physical location is a country of Europe, but the rules are the same whatever the continent.