# Detail the safety stock calculation

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

##### Jiaul Haque replied

**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