Safety stock is a mechanism which manufacturers of any size can benefit from. Your business can be prepared whether stock is going bad, or even if demand is unexpectedly spiking. Better be safe than sorry.
What is Safety Stock?
It’s always reassuring to have a safety net.
Whether it’s bungee jumping, skydiving or even a bottle of just-in-case sunscreen when you go on vacation.
There’s nothing worse than picking up a nasty streak of sunburn because you ran out of sunscreen.
And manufacturing is no different.
Okay, well it is a little different.
Which is why in manufacturing the safety net is called something else…
Safety stock describes the amount of inventory a business keeps in the warehouse to protect against spikes in demand or shortages in supply.
From a manufacturer’s perspective, safety stock principles can and should be applied to both raw materials and final products.
This ensures the availability of materials for production and products for delivery.
The point is that your customers get their deliveries on time, and safety stock is there behind the scenes making it happen.
Otherwise you might end up with a dreaded stock-out and many a waiting, unhappy customer.
It’s not as bad as trying to sleep with a sunburnt back, but it certainly comes close.
Why is Safety Stock Important?
Most manufacturers employ some kind of minimum inventory management principles or MRP tool.
In a perfect world, your suppliers always deliver on time and your sales do not fluctuate unexpectedly. So, your company would never run out of stock.
Sadly, we do not live in a perfect world.
In reality, your suppliers can run into delivery problems due to one-off events or mistakes. It’s not always in their control either, so no point bearing a grudge and getting sulky.
The manufacturing world is a slippery one, where anything can come up at any time.
You can find that from time to time you may fail to meet your weekly manufacturing targets.
Sometimes your sales are also affected by seasonal effects and unexpected marketing successes or failures.
Don’t panic: all of this is normal.
Manufacturers carry safety stock for these very reasons.
The causes of stock issues can be broken down to the following:
Unexpected spikes in any of the above are difficult to predict.
The supply chain is full of surprises – some fun, others not so much.
Due to this uncertainty, having some safety stock in reserve helps you deliver on time and keep your customers satisfied.