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SAP Integrated Business Planning for Supply Chain

SAP IBP - Customer News December 2014 - Test Your IBP Knowledge

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In this section, we will test your knowledge regarding Integrated Business Planning.

The first 5 correct answers get a free SAP USB Stick and Bottle Opener!

Let’s begin with a two-part question:
What is “safety stock”, and how often should you be “dipping into” safety stock?

Part 1: What is safety stock?

  1. Inventory being held for strategic reasons (in case of an infrequent event, like a hurricane, flood, or epidemic)
  2. Inventory being held now, since production is limited in a future period
  3. Inventory being held to buffer against forecast error or late deliveries of material
  4. Inventory being held because your customer told you to hold it (for example, if a customer requires you to maintain shelf-facing stocks, or a certain number of railcars on a siding)

Part 2: How often should you be dipping into that stock level (going below the safety stock threshold)?

  1. Never
  2. Almost never, unless something catastrophic happens
  3. Nearly half the time, but rarely hitting zero total inventory
  4. Almost always, since we’re oversold
  5. Always (or nearly every week)

Please post your answers in the comments below.

And the CORRECT ANSWERS (provided by Leon Dixon, SAP Solution Manager) are:

Part 1: What is safety stock?

Correct answer is C. Inventory being held to buffer against forecast error or late deliveries of material

Comment:  Note that safety stock, as calculated by Enterprise Inventory and Service-Level Optimization (EIS) and Integrated Business Planning for inventory (IBP i), is the material necessary to actively buffer against risk and uncertainty.  This is actually not limited to “only” forecast error, demand variability, and late deliveries, but Safety Stock also buffers against less-than-perfect internal service levels (less-than-perfect in timing and/or quantity, often as a result of intentional multi-stage optimization. 

The proper positioning or deployment of safety stock is critical.  Properly positioning safety stock allows the supply chain to buffer uncertainty and variability in the most efficient manner, to run more smoothly, and even to maximize Planner productivity.

Part 2: How often should you be dipping into that stock level (going below the safety stock threshold)?

Correct answer is C. Nearly half the time, but rarely hitting zero total inventory

Comment:  Note the key to the answer to “What is Safety Stock?” lies the phrase “actively buffer against risk and uncertainty”.    Safety stock, as calculated by EIS or IBP/I,  is operational safety stock – in other words, it’s meant to be used.  The reason Safety Stock exists is to buffer uncertainty in demand or supply, so when this uncertainty is experienced, Safety Stock allows us to absorb that uncertainty without upsetting the whole supply chain (or the customer!). 

Note, however, that the data field marked “safety stock” in ECC or SNP will need to accomplish TWO purposes

  1. Operational safety stock, meant to be used to absorb uncertainty
  2. Strategic safety stock (or “minimum stock requirements”), representing inventory that’s set aside for some strategic reason.  These reasons include “normal” reasons like shelf-facing inventory or contractual minimums, or “strategic” reasons like keeping a “strategic reserve”, perhaps in case of known one-time-type events like hurricanes or special promotions.

In EIS, there is a field to enter this management decision around having more safety stock than strictly needed to buffer the day-to-day, called Merchandising Stock.  By properly populating this field, the EIS output will incorporate both operational safety stock as well as any strategic (manually-decided) minimum required additional stock.


The first 5 winners with the correct answers are: James S.A., Matthew Samsey, Sean Mawhorter, Rajeskhar Sadu, and Archana Sivaraman.

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