This concept is the guardian of efficiency in the supply chain. Let's imagine you run a company that sells products in high demand. If you run out of stock, even for a short time, customers may turn to your competitors. And once they've gone, it's hard to get them to come back... Safety stock acts as a reserve that prevents these unfortunate stockouts. It's not just extra stock; it's a planned part of your supply management. The idea is simple: always keep a certain amount of product in reserve to deal with the unexpected. These contingencies could be delivery delays, a sudden increase in demand, or even quality problems with a recent delivery. Of course, this represents an investment. There are storage costs to consider, and the capital invested in stock cannot be used elsewhere. But the benefits, such as customer loyalty and the ability to seize new opportunities, can far outweigh these costs!
CALCULATE SAFETY STOCK
Calculating safety stock is a fundamental step for any company seeking to optimize its supply chain. Why is it important? Because it gives you a precise idea of how many items you need to keep in reserve to avoid stockouts. This ensures that you can serve your customers in any situation, whether it's an unexpected increase in demand or a delay in delivery. So, what data should you use for the calculation?
- Determine average demand: examine your past sales data to find the average quantity of items sold per day or week.
- Estimate the standard deviation of demand: this is a measure of how much demand varies around the mean. The higher the standard deviation, the more unpredictable the demand.
- Identify the restocking lead time: this is the time it takes to obtain new stock once you've placed an order with your supplier.
Why is this important? Simply because it puts you in a position of strength. You won't have to say no to a customer because you're out of stock. You can also react quickly to market opportunities without fear of running out of resources.
| 🕑 Average restocking time (days) | Average number of days it takes to restock inventory (if you order today and the merchandise arrives in 10 days, the time is 10 days) |
| 📊 Average daily sales (number of products) | Average number of products sold each day |
| 📈 Standard deviation of daily sales | Measurement of daily sales dispersion (this is a metric that shows how much your sales can vary from day to day) |
| 💹 Desired confidence level (%) | Desired probability of never running out of stock (indicate a high confidence level if you want to be very sure of never running out of stock) |
HOW TO CALCULATE SAFETY STOCK
Enter the average restocking time in days, then the average daily sales in number of products, then the standard deviation of daily sales, and finally the desired confidence level. The calculator's formula gives you the number of products you'd need to keep in stock to reach the confidence percentage you've entered
OUR TIPS FOR OPTIMIZING YOUR SAFETY STOCK
You've already understood the importance of safety stock for your business. Now the challenge is to optimize it so that it works in your favor. Here are a few tips that can help!
- Analyze data regularly: consult your sales and inventory data regularly to adjust your safety stock in line with actual demand. A good inventory management tool can greatly simplify this task.
- Evaluate suppliers: if your suppliers are often late or deliver products of variable quality, this can affect your safety stock. Consider establishing performance indicators for your suppliers, and reviewing these indicators regularly. Your delivery time calculation can be a key indicator for evaluating your suppliers.
- Adjust safety stock by product: not all products sell at the same rate, nor have the same impact on your business. Classify your items according to their importance, and adjust your safety stock accordingly.
- Balance costs: holding too much stock can be expensive in terms of storage costs and tied-up capital. On the other hand, too little stock can lead to stockouts and loss of customers. Finding the right balance is therefore a key step.
- Communicate with teams: train and inform sales, marketing, and logistics teams about the importance of safety stock. Good internal communication in each department helps anticipate stock requirements and act accordingly.
- Reassess and adjust: the market changes, as do your products and your customers. Regularly review your safety stock and your management methods, and make any necessary adjustments.
SAFETY STOCK FAQ
Why calculate safety stock?
By having a well-calculated safety stock, you avoid stockouts that can frustrate buyers and give your company the flexibility to adapt quickly to market changes. It's a proactive way of showing your customers that you're reliable, while keeping your business agile and ready to take on new challenges.
What is the minimum stock?
Minimum stock levels vary depending on a number of factors, such as product type, stock rotation speed and customer consumption habits. But whatever the context, the minimum stock represents the stock level below which you should never fall. It's the safety net that keeps you going even when demand is high or deliveries are late. A decisive factor!
How do you know if a stock level is good?
A "good" stock level is one that's in balance: large enough to meet customer demand, but not so bulky as to entail high storage costs or risk of expiry. Another sign that your stock is well managed is when top-selling items are always available, while less popular items don't take up a large proportion of storage space.
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