When a company holds safety stock in a single location, they are essentially ensuring their ability to remain operational should conditions arise where their inventory can no longer be replenished in time and/or in adequate quantities. Frequently referred to as “buffer” or “surge” inventory, safety stock is an important part of a company’s overall supply chain strategy and spend. It can help businesses remain competitive and eliminate potential system disruptions caused by extended lead times, delayed raw material deliveries, limited supplier capacities, and other issues.
From a supply chain management perspective, companies that utilize safety stock need to be particularly aware of their inventory levels and ordering methods. A significant contributor to supply chain inefficiency is overordering, especially when it comes to multiple or oversized shipments, or as a consequence of hasty ordering decisions driven by short-term performance goals or lack of information. By holding safety stock, businesses can ensure that they have the right level of inventory to meet demand, and ensure that they do not overorder, thus minimizing the risk of losing money on excess inventory.
Furthermore, it is important to consider how a company manages their safety stock to ensure maximum efficiency. Traditionally, businesses opt for a single-location approach in order to ensure that their safety stock is always available, but this can be costly and inefficient in the long run. The single-location approach does come with some advantages, such as inventory visibility and control, and it can be beneficial for products that have a high demand rate. However, it is important to make sure there is enough space to store the inventory, and also to have the capability to track and monitor it.
Using multiple locations to hold safety stock may be a better option for some businesses. This approach offers more flexibility and control when it comes to managing inventory, as it allows companies to spread their safety stock across multiple locations. This will make it easier for them to monitor the inventory levels more accurately, as well as to respond quickly to changes in demand. Additionally, by spreading the safety stock across multiple locations, businesses may be able to minimize the cost of storing and shipping inventory, which can lead to cost savings.
Similarly, companies should evaluate the cost and logistical benefits associated with segmenting their safety stock in columns by product. This approach allows them to store smaller amounts of inventory in multiple locations, with each location being dedicated to a particular product or set of products. Segmenting inventory by product can be beneficial for companies that have products with varying lead times, since it allows them to store more inventory in the right location, thus reducing their exposure to potential delays.
Finally, businesses should consider their supplier capabilities and the potential impact this may have on their safety stock management strategy. With some suppliers, companies may be able to transfer orders quickly and efficiently to different locations, while with other suppliers, this may not be possible. As a result, it is important to evaluate supplier capabilities when creating a safety stock strategy, as this may have a significant impact on how a company approaches single-location and/or multiple-location safety stock management.
Safety Stock Management Systems
In order for businesses to effectively manage safety stock in both single and multiple locations, it is important for them to have a system in place that is capable of accurately predicting levels of inventory, as well as providing visibility into any changes in the inventory levels. This kind of system should also have the capability to monitor supplier performance, as well as provide alerts when inventory shortages are predicted. Additionally, a good safety stock management system should be able to generate reports on inventory levels at each location, as well as provide guidance on when it is appropriate to move inventory around and what kind of inventory levels are best for each location.
Such a system can help businesses better manage their safety stock and minimize the risk of inventory shortages. Furthermore, having such a system in place can help improve inventory control and efficiency, as well as ensure that businesses always have the right level of safety stock in the right location. This can help reduce costs, as businesses will not be overstocking or holding too much inventory on hand.
Costs Versus Benefits
When it comes to managing a company’s safety stock, it is important to consider both the cost and the benefits associated with this approach. On the one hand, managing safety stock can be expensive, with inventory costs, warehousing and shipping fees, as well as additional personnel and management costs. On the other hand, the benefits of safety stock include increased system reliability and reduced costs associated with lost sales, returns, and delays in fulfilling orders.
Overall, the costs associated with managing safety stock are often offset by the benefits that can be gained from this practice. A good safety stock strategy can lead to reduced costs associated with overstocking, increased customer satisfaction, and improved distribution efficiency. Additionally, by having an accurate inventory control system in place, businesses can reduce the risk of system disruptions caused by unexpected events, and can ensure that they always have the right inventory levels at the right time.
Conclusion
When companies implement a safety stock management strategy, it is important for them to consider their options and the potential impacts that each approach may have on the overall effectiveness of such a strategy. Companies should evaluate the costs and logistics associated with each option, as well as the potential savings that can be realized by utilizing a strategic approach to safety stock management. Furthermore, businesses should consider the potential benefits that can be gained from holding safety stock, and ensure that they have the right systems in place in order to ensure accurate and efficient inventory control.
