Home Accounting 4 Reason Why You Should Carry Your Safety Stock Inventory

4 Reason Why You Should Carry Your Safety Stock Inventory

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You’re a contractor working on an order and you know you’re short of a critical product due to a surge in demand, which means you’ll have to order it and wait for it to arrive before completing the order for your client. Or maybe you’re a dealer who just got a daily order from a client to discover that your provider is facing a longer lead time than expected due to an unexpected circumstance, and you won’t be able to meet your customer’s deadlines. Does this ring a bell? In all of these scenarios, an avoidable problem can hurt customer experience standards – if only you had been holding safety stock inventory!

What is safety stock inventory?

Safety stock inventory, also known as buffer stock, is the amount of excess stock kept on hand to avoid running out of raw materials or finished products due to production or demand fluctuations. The goal of safety stock is to ensure that after you’ve sold out your cycle stock (what you intended to sell over a certain period), you’re already ready to fill orders if demand or supply changes unexpectedly.

Accurately measured safety stock inventory is needed to maintain high standards of customer service. Many businesses examine their market variations and conclude that there is no continuity to forecast potential variation. They then fall back on trial and error or rule-based approaches to cycle and safety stock inventory, such as retaining a minimum number of weeks of historical average demand – for example, 4 weeks of cycle stock and 2 weeks of safety stock.

One size might fit all

Controlled approaches to inventory management are, unfortunately, a “one size suits everything” solution – but not all inventory items are the same! The “one size fits all” law, by definition, would deliver the appropriate amount of inventory for certain products, too much inventory for others, and insufficient inventory to reach service levels for others. As a result, administrators face market imbalances, which can lead to high inventory prices, stifled cash flow, and slow and/or uneven service levels. Furthermore, rule-based methods are only sensitive to demand shifts.

Reason to maintain safety stock inventory

There are four main reasons to have safety stock on hand.

Safety stock inventory isn’t only a “good to have”; it’s a must. The below are the top four reasons that both small and mid-sized companies should have protection stock inventory on hand.

  1. Guard against unanticipated availability fluctuations.

For example, if your provider closes suddenly for a week or if your shipment is delayed in shipping, you don’t have to spend time filling orders for your customers because you have safe stock. Supply chains are longer and more globalized than ever before, with more powers than ever creating disruptions.

  1. Make up for forecasting errors (only when demand exceeds the forecast)

Perhaps you have a steady demand for a particular object, but one month you sell more than expected; with safety stock inventory in order, you don’t have to lose customer experience when replenishing.

  1. Prevent production or delivery delays.

Safety stock is used to ensure that the customer experience levels remain high and that the supply chain operates smoothly. With safety stock in place, the employees aren’t frantically looking for and reordering parts; instead, they’re completing orders for your clients.

  1. Avoid stock-outs to maintain high standards of customer loyalty and satisfaction.

What is the true purpose of safety stock? Keeping customers happy is important. Although safety stock aids in the seamless operation of your warehouse and supply chain, the ultimate aim is to ensure that your customers are happy and return.

 

It’s important to remember, however, that safety stock, like the rest of your inventory, takes more than a “one size fits all” solution. Protection stock inventory determinations using rule-based methods are largely rigid and unrelated to other important variables including service level, prediction precision, and lead time variability. Since each SKU in your inventory has its demand trend, you’ll need to change your protection stock levels to match.

In certain procedures, rule-based methods are ineffective in assessing optimum inventory levels.

 

Incase if safe stock inventory sounds like a great idea for you but you lack the space to keep your safe stock. For closeout buyers, it’s the pain and pleasure to see their stock just lying around everywhere untamed. You should look for companies that offer storage spaces for businesses to keep their extra storage stock safe. Liquidate is one of North America’s biggest companies that offer storage spaces for business and shipment purposes as well. Guarded keeper for your inventory and with shipment offers from door to door or anywhere you want.