Question about parameter in safety stock method-BS

[Former Member]

Hi Guys,

I am testing  the parameter in BS recently.

This is what I find,

1.

service level 98%

target days' supply      5           7           10           15

safety stock                198        147       83           0

Which means when the service level is 98%, target days goes up, then safety stock is down.

When I set target days' supply to 15, safety stock is 0. 

2.

target days' supply  7

service level       99%    98%  99%

safety stock       317      147    36

Which means when the target days'supply is 7,   service level goes down, then safety stock goes down.

Could someone give me any idea about these 2 cases?  why this happen?

Thanks a lot

Michael

[Former Member · Accepted solution]

Hi,

You can find information about how SS is calculated in this llink

Reorder point with Beta Service level (BS) meth... | SCN

Safety Stock is dependent on supplier lead time, the variability of demand and control period. 

In the data you provided you do not mention these.   In order to explain, lets asume your supplier takes 5 days to deliver and you check your inventory every other day. 

In the first value, 5 day target supply, you have not sold anything and you already need to place an order.  In this case need a big safety stock because you do not know what is going to happen, and in order to be covered 98% of the times you need a big safety.

In the last number 15 day target supply.   Since you check your inventory every other day and your supplier takes 5 days to deliver.   Asuming that for some reason your sales double.   Since you check your inventory every other day, by day 2 you will notice this increase and place an order to your supplier.   The supplier requires 5 days to deliver, so it will arrive by day 7.   Since you had 15 days target supply, by day 7 when your receive your new order you would still have one day left of inventory. That is why you do not need a safety stock in this case.

I believe you have tipo on your second example.

Hope this helps.

juanpa

[Former Member · Accepted solution]

Thanks  Juan.

It is very helpful and easy to understand

Regards,

Michael

[Former Member · Accepted solution]

I'm glad it helped you

Juan