How to determine the required and safety stock of goods in a warehouse. Determining the size of safety stocks How to calculate safety stock of raw materials
Insurance inventory- This is a reserve that is constantly in the warehouse in case of unforeseen circumstances. Most often, safety stock is used to cover the risks of a shortage in the following situations:
- change in sales speed
- delay in delivery of goods (this covers the risks of production delays at the supplier, delays in delivery or cargo clearance - in general, risks throughout the entire order fulfillment cycle)
In practice, insurance inventory rarely lies idle. Therefore, when calculating orders, the supplier must take into account each time that by the time the next batch of goods arrives, safety stock must remain in the warehouse. This value has a direct impact on the calculation of supplier orders. Safety stock is also an important component when calculating the planned turnover of goods.
So, what should the safety stock be?
There are many formulas for calculating safety stock, but many of them are cumbersome and in the middle of the calculations you forget what was at the beginning.
First of all, the safety stock should be different for different items. That is, at the beginning of the calculations, it is recommended to conduct an ABC analysis of the commodity matrix and then determine its own safety stock for each of the groups.
It is most convenient to calculate insurance as a coefficient of average monthly sales, because In this case, when the sales speed changes, the insurance coverage will also change. This will help avoid situations where, for example, demand has dropped by half, but the warehouse continues to be supported by insurance in large quantities.
That. It turns out that the most difficult thing is to determine the safety stock ratios (based on average monthly sales).
First factor, from which the coefficient is formed, is the delivery time of the goods (including the production cycle, delivery, clearance, acceptance of goods in the warehouse), i.e. The time from the moment of ordering to the moment the product goes on sale. Let's say we define it in months (for example, 0.5 = 2 weeks, 1.5 - one and a half months, etc.). Next, it is necessary to determine the deviation in delivery times. It can be taken actual (for this you need to analyze the receipts of goods for recent periods and calculate how long they deviated from a certain standard delivery time) or calculated expertly (for example, according to my feelings, delivery is delayed by an average of a week, and the total delivery time is 6 weeks . i.e. we get a deviation of 1/6 = 0.17).
Then we multiply the deadline in months by the deviation (for example, 1.5 * 0.17 = 0.26). We get 0.26 - this is the first part of the safety stock ratio, which covers the risk of the goods being delayed for a week.
Second factor, from which the coefficient is formed - a possible deviation in the speed of sales towards an increase. Here you can also calculate the actual deviation of sales from the average or determine it expertly. For example, if sales deviate from the average by 30 percent, then the deviation is 0.3. After which we multiply the deviation by the delivery time 0.3 * 1.5 = 0.45 - this is the second part of the safety stock ratio. Which covers the risk of increasing sales speed by 30%.
We multiply 0.71 by the average monthly planned sales and get the required safety stock.
How to vary safety stock for different product categories?
For the category of goods of group B, it is necessary to determine, in the event of risks of delaying the receipt of goods or increasing the speed of sales, how well we want to ensure sales of this category. In practice, most likely about 80% of sales. Thus, the safety stock coefficient for this group of goods will be 0.71 * 0.8 = 0.57.
For category C goods, the onset of a shortage is usually not very critical, so it may be sufficient to ensure 50% of sales in the event of risks. That. The coefficient for this group will be equal to 0.71*0.5 = 0.36.
Important: The longer the delivery time for the goods, the greater the jumps in sales and the greater the risk of product delays, the more safety stock we need to have in stock.
4. Safety stock of goods.
Insurance, or guaranteed, reserve (Z WITH ) created for ensuring uninterrupted trade in the event of a significant increase in population demand, deviation from the established frequency and volume of goods imported. It is established taking into account the frequency of delivery of goods, as well as other conditions, and can reach 30% of the trade stock.
The value of Z C can be determined by the formula: Z C = K + σ,
where K is the coefficient associated with the organization of goods distribution, ranges from 1 to 3;
σ – standard deviation of sales volume by quarter, month as a percentage of the annual sales volume.
Safety stock can be calculated using other methodological techniques:
Based on information about average monthly consumption and the time interval between supplies: 3 C =
where З С – safety stock; 
– average monthly consumption of the drug;
r – time interval between deliveries (months);
Taking into account the level of service (L): Z S = L 
,
where M is monthly sales; 
– average monthly sales; n – number of months.
5. Calculate the volume of the optimal inventory components, taking into account that the inventory on the sales floor is created for 2 days, the maximum period for acceptance and preparation of goods for sale is 0.5 days.
Solution:
Working stock: 3 r = 2 days. + 0.5 days = 2.5 days
Product delivery frequency = 7 days. + 3 days = 10 days
Current replenishment stock: 3 tp = ½ x 10 = 5 days.
Optimal stock: Z opt = Z r + ½Z tp + TZ
Z opt = 2.5 + ½ x 5 + 3 = 8 days, i.e. 30 x 8 = 240 packs. – optimal supply of the drug.
Task 3.
The pharmaceutical company has a license for pharmaceutical activities, including wholesale and retail trade through its own network of pharmacies serving the population. At the same time, modern methods of organizing product distribution are practically not used in the company. The average level of the company's costs associated with the purchase and sale of products as a whole for a number of periods was: 31%, 33%, 30%, 29%. The level of costs for transporting goods to pharmacies in the reporting period was 10%. The projected turnover is 1,400 thousand rubles.
1. Analyze the average level of these costs for the company as a whole. Draw a conclusion based on the results of the analysis of the dynamics of the average level of costs.
The company's costs are consistently high. Measures to reduce costs are needed.
2. Suggest possible measures to reduce costs.
Measures to reduce costs are needed.
Reducing labor costs by reducing the number of employees.
Reduction of production costs (rent payments, utility bills).
Apply modern methods of product distribution and production automation.
Work with the assortment in such a way as to increase the overall level of markup. Revise the matrix towards high-margin positions.
Increase turnover through a system of upsells and complex purchasing.
When analyzing labor costs, it is necessary to pay attention to the ratio of the growth rate of trade turnover or labor productivity and the average wage per employee.
When analyzing transport costs, you should pay attention to the types of vehicles used and the rationality of using your own road transport.
Rent and utility costs depend on the leased area and rental rates.
It is necessary to study in detail the state of expenses for current repairs, compare them with planned ones and determine relative deviations.
Study the costs of preparing goods for sale, reducing them to a minimum.
Pay attention to income tax expenses and penalties.
Task 4.
For an uninterrupted supply of medicines, a pharmacy must have an optimal supply of goods worth 50 thousand rubles. According to the report, the actual balance of goods amounted to 80 thousand rubles.
Safety stock for each item - a permanent, inviolable part of the reserves under normal conditions, intended for the continuous supply of consumers in case of unforeseen circumstances
Safety stock protects you from stockouts while waiting for stock to be replenished. Why is such “insurance” needed?
Demand is a forecast based on past performance, trend factor(s) and/or known future consumption. Actual consumption of the product may be more or less. Safety stock is required when actual consumption exceeds forecast. This insurance ensures the ability to fulfill customer orders.
Planned order lead time- This is also a forecast, usually based on data on past deliveries. Sometimes the actual order fulfillment time is longer than predicted. Safety stock prevents stockouts from occurring when it takes longer than expected to receive replenishment.
Pros and cons of safety stocks
Pros.
Ensures uninterrupted sales in case of fluctuations in demand;
Ensuring uninterrupted sales in the event of changes in delivery times from the supplier (due to the fault of the supplier, due to the fault of the transport company, etc.)
Higher level of customer satisfaction
Minuses.
The need for working capital for the purchase of goods is increasing
Company costs increase
The need for warehouse space is increasing
Determination of the volume of Insurance reserves
There are several methods for determining the volume of safety stocks:
- determining the volume of safety stock as a percentage of demand during order fulfillment;
- determining the volume of safety stock based on daily consumption;
- manually specifying the safety stock volume;
- determining the volume of safety stock based on the average deviation.
Percentage of demand during order fulfillment
This method involves setting the safety stock volume as a percentage of demand for the planned lead time. It assumes that the volume of safety stock grows in proportion to demand and the length of lead time. This method is usually suitable for products that are used regularly and are replenished less than once every two to three weeks.
- To determine the safety stock volume, the specified percentage is multiplied by the estimated demand over the lead time (Daily Demand X Planned Lead Time). Let's say you decide that the safety stock should be at 50% of the quantity demanded at the planned lead time. Assume: Planned lead time = 10 days
Daily demand = 2 pcs. Safety stock = 50% of demand at the planned time
(2 X 10) X 50% = 10 pcs.
We will keep 10 pcs. (five days requirement) as safety stock. This method is easy to understand, but it often results in safety stocks that are too large or too small. In particular, this applies to the following products:
Products with long but constant lead times and fairly constant demand
If we use this method (and the specified percentage) for an imported product with a planned lead time of 12 weeks, then we will have to hold a 6-week supply for insurance. If we usually receive replenishment on time and demand does not fluctuate significantly from month to month, then the safety stock will be too large. In other words, too much money will be frozen in unproductive stock.
Products with very short lead times and significant fluctuations in demand from month to month
If the planned lead time is a week, this method (and the percentage you specify) will result in a three- or four-day safety stock. If consumption fluctuates from month to month, the available quantity of product may not be enough to smoothly fulfill customer orders, and the company will face shortages.
Let's look at another example. With a planned lead time of 120 days, the calculation is as follows:
Planned lead time =120 days
Daily demand = 2 pcs.
Safety stock = 50% of demand at the planned time
(2 X 120) X 50% = 120 pcs.
Do not forget that safety stock is only a guarantee and, as a rule, does not provide return on investment. A safety stock calculated for 60 days (two months) will probably exceed what is actually needed, unless, of course, lead time and demand are subject to excessive fluctuations.
Based on daily consumption
This method is popular in those organizations that always want to have a stock of supplies on hand. X days" as a last resort. With this approach, the volume of the safety stock is determined by multiplying the number specified manually in the column “number of days for which the safety stock is calculated” by the current daily demand. For example:
Number of days for which safety stock is calculated = 14 days
Daily demand = 2 pcs.
2 X 14 = 28 pcs.
This method assumes that safety stock is determined based on the purchasing manager's or management's "guess". But purchasing managers tend to exaggerate the required safety stock in order to ensure a high level of service. Naturally, because shortages are so unpleasant. If you are not careful, using this method will result in excess.
Manual task
This method is similar to the daily consumption method of calculating safety stock, but in this case the purchasing manager himself determines how much of the product should be kept on the shelf as a reserve. As in the previous case, this method often leads to the creation of unnecessarily large inventories.
Based on average deviation
Remember that the purpose of safety stock is to ensure a high level of service in the event of unusual demand during order fulfillment or when there is a delay. As discussed above, we can compensate for variability in lead times by setting the planned lead time for a particular item to the largest possible normal value. But we also need to take into account fluctuations in demand. The greater the variability in consumption volumes, the greater the safety stock that must be maintained for a given product. This requirement is taken into account when calculating the volume of safety stock based on the average deviation.
Let's look at an example. The variation or deviation of demand will be considered the difference between the forecast value of demand and actual consumption in each of the last three months (in such cases, a period of three to six months is usually taken). Let’s say the dynamics of demand and consumption of a product were as follows:
In January, the difference between the forecast demand of 50 units and actual consumption of 60 units. amounted to 10 pcs. In February, the forecast value of demand was 76 units, and actual consumption was 80, which gave a difference of four units. Average deviation:
10 + 4 / 2 = 7 pcs. per month.
Please note that the March deviation, when forecast demand exceeded consumption, is not taken into account in our safety stock calculation. Why" Because if the forecast of customer demand exceeds actual consumption, we definitely should not increase the safety stock. There are already more than enough available goods.
We multiply the average deviation by the deviation factor. The coefficient is selected depending on the desired level of customer service, defined as the proportion of product items for which deliveries to customers were made at one time by the promised date. The higher the ratio, the larger the safety stock we maintain and the higher the level of customer service. (Customer service levels are discussed in detail in Chapter 1.)
We have found that the proper level of customer service is usually achieved with the following values:
If the goal is a customer service level of 95%, multiply the average deviation by 2 (7 X 2 = 14 units). Be careful! Using a large variance factor results in a large circulating inventory. This is easy to notice if you build a graph for the order sizes of a constantly consumed product (Fig. 3.11).
Rice. 3.11
The graph shows that there are few orders for the supply of relatively small quantities of goods, as well as orders for the supply of relatively large quantities, and the largest number of orders are of “typical” volume. We will have to create a much larger safety stock if we want to service a relatively small number of large supply orders from our own inventory. Remember that all statistical models are imperfect. Carefully monitor customer service levels to identify the need to increase or decrease accepted variance rates to achieve desired goals.
The next article will present a method for determining the volume of safety stocks based on standard deviation.
As in the area of calculating optimal life insurance programs, different methods are used in determining the required volume of safety stock. Let's look at four of them:
- determining the volume of safety stock as a percentage of demand during order fulfillment;
- determining the volume of safety stock based on daily consumption;
- manually specifying the safety stock volume;
- determining the volume of safety stock based on the average deviation.
1. Percentage of demand during order fulfillment.
This method involves setting the safety stock volume as a percentage of demand for the planned lead time. It assumes that the volume of safety stock grows in proportion to demand and the length of lead time. This method is usually suitable for products that are used regularly and are replenished less than once every two to three weeks.
To determine the safety stock volume, the specified percentage is multiplied by the estimated demand during the lead time (Daily Demand * Planned Lead Time). Let's say you decide that the safety stock should be at 50% of the quantity demanded at the planned lead time. Let's assume:
Planned lead time = 10 days
Daily demand = 2 pcs.
(2 * 10) *50% = 10 pcs.
We will keep 10 pcs. (five days requirement) as safety stock. This method is easy to understand, but it often results in safety stocks that are too large or too small. In particular, this applies to the following products:
- Products with long but constant lead times and fairly constant demand. If we use this method (and the specified percentage) for an imported product with a planned lead time of 12 weeks, then we will have to hold a 6-week supply for insurance. If we usually receive replenishment on time and demand does not fluctuate significantly from month to month, then the safety stock will be too large. In other words, too much money will be frozen in unproductive stock.
- Products with very short lead times and significant fluctuations in demand from month to month. If the planned lead time is a week, this method (and the percentage you specify) will result in a three- or four-day safety stock. If consumption fluctuates from month to month, the available quantity of product may not be enough to smoothly fulfill customer orders, and the company will face shortages.
Let's look at another example. With a planned lead time of 120 days, the calculation is as follows:
Planned lead time = 120 days
Daily demand = 2 pcs.
Safety stock = 50% of demand at the planned time
(2 * 120) * 50% = 120 pcs.
Do not forget that safety stock is only a guarantee and, as a rule, does not provide return on investment. A safety stock of 60 days (two months) may be larger than what is actually needed, unless lead times and demand fluctuate excessively. If your computer system only supports this method, reduce the percentage for items with long lead times and/or constant consumption.
2. Based on daily consumption.
This method is popular in those organizations that always strive to have a reserve on hand in case of emergency. X days. With this approach, the volume of the safety stock is determined by multiplying the number specified manually in the column “number of days for which the safety stock is calculated” by the current daily demand. For example:
Number of days for which safety stock is calculated = 14 days
Daily demand = 2 pcs.
2 * 14 = 28 pcs.
This method assumes that safety stock is determined based on the purchasing manager's or management's "guess". But purchasing managers tend to exaggerate the required safety stock in order to ensure a high level of service. Naturally, because shortages are so unpleasant. If you are not careful, using this method will result in excess.
3. Manual task.
This method is similar to the daily consumption method of calculating safety stock, but in this case the purchasing manager himself determines how much of the product should be kept on the shelf as a reserve. As in the previous case, this method often leads to the creation of unnecessarily large inventories.
4. Based on average deviation.
Remember that the purpose of safety stock is to ensure a high level of service in the event of unusual demand during order fulfillment or when there is a delay. As discussed above, we can compensate for variability in lead times by setting the planned lead time for a particular item to the largest possible normal value. But we
fluctuations in demand must also be taken into account. The greater the variability in consumption volumes, the greater the safety stock that must be maintained for a given product. This requirement is taken into account when calculating the volume of safety stock based on the average deviation.
Let's look at an example. The variation or deviation of demand will be considered the difference between the forecast value of demand and actual consumption in each of the last three months (in such cases, a period of three to six months is usually taken). Let’s say the dynamics of demand and consumption of a product were as follows:
|
Projected Demand |
Actual consumption |
Deviation |
|||
|
January |
|||||
|
February |
|||||
|
March |
|||||
In January, the difference between the forecast demand of 50 units and actual consumption of 60 units. amounted to 10 pcs. In February, the forecast demand was 76 units, and the actual consumption was 80, which gave a difference of four units.
Average deviation: (10+4)/2=7 pcs. per month
Please note that the March deviation, when forecast demand exceeded consumption, is not taken into account in our safety stock calculation. Why? Because if customer demand forecast exceeds actual consumption, we definitely shouldn't increase our safety stock. There are already more than enough available goods.
We multiply the average deviation by the deviation factor. The coefficient is selected depending on the desired level of customer service, defined as the proportion of product items for which deliveries to customers were made at one time by the promised date. The higher the ratio, the larger the safety stock we maintain and the higher the level of customer service.
We have found that the proper level of customer service is usually achieved with the following values:
|
deviation coefficient |
level of customer service |
||
If the goal is a 95% customer service level, multiply the average deviation by 2 (7 * 2 = 14 units). Be careful! Using a large variance factor results in large non-circulating inventory. This is easy to notice if you build a graph for the order sizes of a constantly consumed product (Fig. 3.11).
The graph shows that there are few orders for the supply of relatively small quantities of goods, as well as orders for the supply of relatively large quantities, and the largest number of orders are of “typical” volume. We will have to create a much larger safety stock if we want to service a relatively small number of large supply orders from our own inventory. Remember that all statistical models are imperfect. Carefully monitor customer service levels to identify the need to increase or decrease accepted variance rates to achieve desired goals. Later in this chapter we will look at how the residual stock analysis method can be used to fine-tune the amount of safety stock.
Based on materials from the book Effective Inventory Management by John Schreibfeder
At the firm level, inventories are among the objects that require large capital investments, and therefore represent one of the factors that determine the policy of the enterprise and affect the level of logistics services as a whole.
The role of information and computer support for logistics management cannot be overestimated. The current state of logistics is largely determined by the rapid development and implementation of information and computer technologies in all areas of business. The implementation of most logistics concepts (systems) would be impossible without the use of high-speed computers, local area networks, telecommunication systems and information software.
Inventory - stocks of finished products at manufacturing enterprises, as well as stocks along the route of goods from supplier to consumer, that is, at wholesale, small wholesale and retail trade enterprises, in procurement organizations and stocks in transit.
Safety stocks are intended for the continuous provision of materials or goods for the production or trade process in the event of various unforeseen circumstances, for example, such as:
deviations in the frequency and size of supply batches from those stipulated in the contract;
possible delays in materials or goods in transit when delivered from suppliers;
unexpected increase in demand.
Safety stocks are formed in order to protect against uncontrolled behavior of buyers (since it is impossible to predict the number of daily orders) and delays in the delivery of goods (due to failure of suppliers and transport companies).
The principles of inventory management can be formulated in the form of a simple algorithm consisting of several steps:
determining what the company can manage;
identifying relevant costs and their dependence on controlled parameters;
searching for the optimal solution in which the relevant costs for the company will be minimal.
Company management can influence the inventory balance by managing the purchasing process. Therefore, it is possible to determine the main parameters of inventory management:
size of the order for the purchase of goods;
order renewal time (the parameter on the basis of which the decision to place new orders is made).
Relevant costs are those that change as a result of a decision. In an inventory management system, the following groups of relevant costs are usually distinguished:
costs associated with storing inventories (cost of capital immobilized in inventories; costs of maintaining goods in a warehouse);
costs associated with fulfilling orders (costs of maintaining accounting documentation; transportation costs for delivering orders; costs associated with placing orders, etc.);
losses arising from a shortage of inventories (expenses in the form of loss of part of the profit or loss of customers and part of the company’s business reputation).
It is important to determine not only the costs that will change, but also how they will change. This will allow you to simulate the consequences of the decision made. The most common are so-called competing costs, that is, costs that move in opposite directions. For example, an increase in safety stock in a warehouse leads to an increase in storage costs and a decrease in the risk of losses due to downtime.
The optimal solution will be one in which the sum of all relevant costs is minimal. If the costs themselves and the order of their changes are determined, then calculating the optimal solution is already a technical problem. It won't be difficult to solve it using Excel.
where D is the planned demand for a given stock item for the period (month, quarter, year); A - the costs of fulfilling one order, which arise when placing a new order; C is the cost of storing a unit of inventory for the period.
To calculate the optimal size of the safety stock under conditions of uncertainty, methods of mathematical statistics are used. In particular, you can use the generally accepted formula for calculating safety stock.
where k is the safety coefficient, which determines the degree of protection against shortages, is calculated depending on the accepted value of the probability of shortages (the specific value of the coefficient k can be calculated in Excel by substituting the accepted value of the probability of inventory shortages into the "NORMSINV" function and taking the module of the resulting value);
- average order completion time;
- average value of demand for a product;
vard, varLT - standard deviations of demand for goods and order fulfillment time, respectively.
The volume of safety stock largely depends on the acceptance or non-acceptance of risk by the company's economist. But, as a rule, financial directors cannot answer the question of what probability of losses is acceptable for their enterprise. Of course, it is much safer to exclude such a possibility altogether, but this will lead to the creation of significant safety reserves that the company will never use.
