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 drama...