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Safety Stock: Which Method Is Right for You?

by The Tip Doctor

June 2, 2010

The Tip Doctor, Insider Learning Network

This week's supply chain tip comes from Saroj Tripathi, Principal Consultant, Bristlecone, Inc., and originally appeared in an issue of SCM Expert:

The safety stock level and method depend on the specific industry condition and, more so, on a company’s supply chain philosophy.

Two variables that affect safety stock decisions are ownership of the inventory and the metrics adopted to evaluate planners and supply chain organizations.

In some companies, the supply chain group is responsible for the inventory, while in others, the responsibility lies with business groups, units, or divisions. If the business is responsible for the inventory and the supply chain organization is evaluated on the basis of its ability to meet the demands from the divisions, then the supply chain organization tends to go for fixed quantity-based safety stock methods.

If the supply chain team is responsible for the inventory and is measured on the basis of supply availability to the divisions, then I have noticed better and more sophisticated safety stock practices are deployed to minimize the inventory while meeting service levels.

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