Eliminating Safety Stock - a Crises in the making

When I work with the industry in the domain of Inventory rationalization, many a times Supply Chain practitioners feel that the easiest part of inventory which can be reduced is "Safety Stocks". By and large practitioners believe that Safety stock is the redundant inventory in the system which also is a cost without benefit. There is a prevalent practice to have Zero safety stocks or (in some companies as they are called) Buffer stocks.

The target inventory norm for any SKU has to have consideration for Consumption during the Lead Time, Standard Deviation of Supply side, Standard deviation of the Demand side and expected Service Level. Statistically speaking, if one maintains enough inventory to cover average consumption during the lead time then the probable service level (% times the SKU is available on the first instance of being demanded) is only 50%. This point is missed in many instances of inventory exercises leading to on paper reduction of inventory but a dramatic high cost of acquisition of inventory.

Safety stocks represent an investment. For the management it acts like an alarm system. As long as the system functions smoothly, ideally speaking, the safety stock shouldn't be consumed. If the system has to draw material from the safety stock it represents a time in the inventory management life cycle where the practitioners need to get back to the drawing boards as some fundamental changes have happened to the underlying premises of the inventory system. But by eliminating safety stock completely one doesn't really know much about the functioning of the system. All that we know is there is a large team of purchase guys following up, sales guys have heated customers and generally the company is always busy with managing flow of material. The inefficiency of the overall system is pretty much hidden as followups as considered to be way of working, spending extra hours at job to ensure availability of material is a norm and in certain cases, spending days at vendors premises to ensure no delivery delays is considered to be a heroic act. All this happened as Inventory reduction had taken away buffer/safety stock and now is a "Lean System" (Lean being an english term rather than a philosophy).

I personally feel that elimination of safety stock only ensures the system stays chaotic. And in a chaotic environment one can't find a structure. And because one has no structure, the chaos continues. For me Safety stock is an element of the Inventory Management System which needs to exist to act as a trigger for identifying system health issues. 

Human body is a classic case of safety stock. Let us take an example. Humans have two kidneys. But we also know that there are individuals who live with one. So should the inventory of kidneys be changed from two to one (assume we can influence the design of human bodies). We probably don't wish to make humans live with one kidney. The reason being that this Safety stock of one kidney acts as an investment than a cost. Humans who live on one kidney obviously live with very large amount of constraints as their safety stock has vanished. Similarly if in corporate world, i take away the safety stock i have made the overall system prone to more "Crises".