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Detail the safety stock calculation

Former Member
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Hi Experts

I simulkate the automatic reorder point planning.

I have used the range of profile

Period type = M, No of period =2, Type of length = 3 and days/period = 20.

Range of coverage for first period (target) = 3, no of periods= 2

RO point is 150, replenishment lead time : 40 days

Now, with different % of service levels, i am getting different values for safery stock.

Please detail the calculation of safety stock for above scenario considering 60% and 70% service levels respectively.

warm regards

ramSiva

Accepted Solutions (1)

Accepted Solutions (1)

former_member196530
Active Contributor
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Dear ,

AS I am using the Safety stock concept in our business process , hope that the below details whih i have gained over an period of time will help you to calculate the Safety Stock .I have given an example of the Safety Stock Calcualtion .

Frist of all please Note the following parameters are to be maintained in MRP views in FBP before safety stock calcualtion .

1.MRP1 View : MRP Type : VV -Forecast Base Planning MRP Group -0000/0001/0002 as per ur business req.

MRP Controller : XXX Lot Size : EX .If u want to order Mini or Max order qty , u can enter that value here .

2.MRP2 View : Procurement Type : E/F/X based on the IH/External Prc or both , Service level Percentage : x% based on the service level of your busniess .

This will be used in Safety Stock Calculation Automatically based on the setting you have done in customising in Check MRP Type -SPRO.If u tick Safety Stock in in cutomising -MRP Type , then it will calcualte the Safety Stock considering the service level percentage , MAD,Basic Values and Lead time in material master .

In MRP2 view , u have to key in Lead Time : Vendor Lead time to bring the item in store and GR processing time .It will be considered in Safety Stock Calcualtion in FBP.

3.MRP3 VIEW : Period Indicator ,:M/W based on your requirement.This will be getting copied to Forcating view in MMR

Availabilty Check Indicator: 01 , Planning Strategy : 40

4.MRP4 : Individual/Collective indicator : 2

5.Forecasting View : Forecast Model , Initializing parametrs , Smoothing factors , Consumption values, Hist Period, Period per session , Control Data .

Calculation: ( As an Example )

SAP Formula Number : 17 SS = R x Sqrt of W x MAD

Service Level %age: 85 Multiplier: 1.3 as per SAP Help Chart .

Planned delivery time : 45

Gr Processing Time (GRT) : 0

Pur Processing time (PRT) : 0

MAD : 278 ( From Material Master Forcasting view )

W = ( PLDT *5/7) + GRT+PRT = 32.14 Square W = 1.22534

SS = R x Sqrt of W x MAD = 1.31.22534 278 = 442

Hope this will give you an idea on this .

Regards

JH

Former Member
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Dear JH

I am very much thankful to you for the answer.

1) Can you please let me know how the MAD is calculated?

2) How the service level is decided? Please give an example of criteria that are used for assessing service level %.

warm regards

ramSiva

former_member196530
Active Contributor
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Calcualtion of MAD :

MAD = 1/N [(Sigma of T =1 TO T = N) {(Mode of (P(t)-V(t))} ]

Service Level Percentage :

Several definitions of service levels are used in the literature as well as in practice. These may differ not only with respect to their scope and to the number of considered products but also with respect to the time interval they are related to. These performance measures are the Key Performance Indicators (KPI) of an inventory node which must be regularly monitored. If the controlling of the performance of an inventory node is neglected, the decision maker will not be able to optimize the processes within a supply chain.

Alpha Service Level

The u03B1 service level is an event-oriented performance criterion. It measures the probability that all customer orders arriving within a given time interval will be completely delivered from stock on hand, i.e. without delay.

Two versions are discussed in the literature differing with respect to the time interval within which the customers arrive. With reference to a demand period, u03B1 denotes the probability that an arbitrarily arriving customer order will be completely served from stock on hand, i.e. without an inventory-related waiting time (period u03B1p service level):

In order to determine the safety stock that guarantees a target u03B1p service level, the stationary probability distribution of the inventory on hand must be known. This version of u03B1 is also called ready rate.

If an order cycle is considered as the standard period of reference, then u03B1 denotes the probability of no stock-out within an order cycle which is equal to the proportion of all order cycles with no stock-outs (cycle u03B1c service level).This second definition, which is often used in operations management textbooks, is based on the idea of not running out of stock during the time between re-ordering and order arrival (the leadtime). That is, the probability of demand during that leadtime being less than or equal to the amount of stock you had left when you ordered. It assumes your reorder point is positive, that orders are in unit increments and inventory is monitored continuously so you can not stock out prior to reordering.

u03B2 service level (type 2, also known as "fill rate")

The u03B2 service level (fill rate) is a quantity-oriented performance measure describing the proportion of total demand within a reference period which is delivered without delay from stock on hand .This is equal to the probability that an arbitrary demand unit is delivered without delay.Because, contrary to the variations of the u03B1 service level, the u03B2 service level does not only reflect the stock-out event but also the amount backordered, it is widely used in industrial practice.

u03B3 service level

The u03B3 service level, a time- and quantity-related performance criterion, serves to reflect not only the amount of backorders but also the waiting times of the demands backordered.

All those service level have indiviaul formula to calculate in Inventory management and been Identified in a chart as provided by the SAP .

Hope this fact will help you to conculde your requirement .

Regards

JH

former_member196530
Active Contributor
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Calcualtion of Service Level :

Alpha service level = Probability of ( period demand less than equal to Inventory On hand at the beginng of the period )

Beta Service level = 1- ( expected back order per time period /expected period demand )

Gama Service level = 1- (Expexted back order level at time period /Expected period demand ) .

Consider Customer Order Waiting time and Duartion of stock out situation .

Safety Stock Calculation :

Calculation: ( As an Example )

SAP Formula Number : 17 SS = R x Sqrt of W x MAD

Service Level %age: 85 Multiplier: 1.3 as per SAP Help Chart .

Planned delivery time : 45

Gr Processing Time (GRT) : 0

Pur Processing time (PRT) : 0

MAD : 278 ( From Material Master Forcasting view )

W = ( PLDT *5/7) + GRT+PRT = 32.14 Square W = 1.22534

SS = R x Sqrt of W x MAD = 1.31.22534 278 = 442

Calcualtion of MAD :

MAD = 1/N [(Sigma of T =1 TO T = N) {(Mode of (P(t)-V(t))} ]

Please let me know if you need farther assistance .

Hope this will help you to figure out your requirement

Regards

JH

Former Member
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Dear All,

As new Junior SCManager, I've small challenge... it's to put Safety Stock on some FP's, knowing that each FP is consists of the components, So i've LT on FP , and Lead time on Components.

I want to calculate SS for FP, cause our Sub-Contractor is doing somethings to reduce the LT on components.

For this i choose this formula;

  • SS = Z(p) x √[(LTavg x σD²) + (Davg² x σLT²)]

so the problem is that i've only the monthly Demand historical, and LT's in week's, my replenishment period is one quarter (3 months), how can i apply with this info? is it the good formula? is there another one including MoQ ? 

until you read, please accept my most respectful greetings

Bob

Answers (2)

Answers (2)

Former Member
0 Kudos

Dear All,

As new Junior SCManager, I've small challenge... it's to put Safety Stock on some FP's, knowing that each FP is consists of the components, So i've LT on FP , and Lead time on Components.

I want to calculate SS for FP, cause our Sub-Contractor is doing somethings to reduce the LT on components.

For this i choose this formula;

  • SS = Z(p) x √[(LTavg x σD²) + (Davg² x σLT²)]

so the problem is that i've only the monthly Demand historical, and LT's in week's, my replenishment period is one quarter (3 months), how can i apply with this info? is it the good formula? is there another one including MoQ ?  

until you read, please accept my most respectful greetings

Bob

Former Member
0 Kudos