The Impact of Integrated Business Planning on Safety Stock Calculation Methods

Safety stocks are a crucial part of meeting customer demand. They are an important buffer that protects businesses from unexpected spikes in demand, allowing companies to have inventory on hand to deliver to the customer without waiting for (often lengthy) production lead times. Inventory, however, is expensive, and holding excess stock puts companies in a position where inventory may become obsolete. It is crucial, therefore, that demand management and inventory management professionals strive to protect their company’s bottom line and cash flow by finding the right balance. Here I present effective safety stock calculation methods that, supported by forecasting and S&OP, can effectively reconcile the need for high customer fulfillment rates with the need to minimize costs.