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Safety Stock Calculation for Your Wholesale Distribution Business

A quick overview of safety stock and how to calculate safety stock. Simply explained and contains ready-to-use formulas

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Safety Stock Calculation for Your Wholesale Distribution Business

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  1. SAFETY STOCK CALCULATION FOR YOUR WHOLESALE & DISTRIBUTION BUSINESS

  2. When you’re running a busy wholesale and distribution business You face the risk of stockoutsEVERY DAY

  3. Despite your best efforts in forecasting sales and adjusting for seasonal demand, you cannot completely predict or have any control over the supply and demand for your products

  4. YOU ARE JUST A PLAYER IN A COMPLEX SUPPLY CHAIN

  5. Allow a margin of error and provide extra stock to minimize out-of-stock situations THE NEXT BIG THING

  6. WHY IT MATTERS TO YOUR BUSINESS What is Safety Stock Calculating safety stock

  7. WHAT IS SAFETY STOCK? Safety stock doesn’t refer to the first aid kit that you keep in the office. It commonly describes the additional stock that you keep in your inventory to reduce the risk of stockouts OUT-OF-STOCK SCENARIOS

  8. WHY IS SAFETY STOCK IMPORTANT? Keeping safety stock is critical for your business. In addition to smoothing out unexpected swings in demand and supply, buffer stock also influences the optimal inventory level, stocking of time-sensitive goods and plays a part in new product launches CUSTOMER SATISFACTION

  9. UPSWINGS IN DEMAND 1 These short-term bursts in demand will drain your available stock, cause a stock out for that product, and may even impact your suppliers who are facing backorders that their production schedule cannot meet VIRAL MARKETING

  10. DROPS IN SUPPLY 2 As a wholesaler and distributor, you’re just part of an intricate supply chain. You are wholly dependent on your suppliers, both local and overseas, to produce and ship the goods that you carry. This means that you’re also vulnerable to any impact that your suppliers face DAMAGE AND CLOSURES

  11. OPTIMAL INVENTORY LEVEL 3 Keeping additional buffer stock introduces all the usual risks of overstocking. Spending too much on safety stock means that cash is tied up in inventory. And it costs money to store and carry goods BALANCING  STOCK LEVEL

  12. TIME-SENSITIVE PRODUCTS 4 Overstocking also presents a risk if you deal with goods that are perishable or have expiry dates. Fresh fruit and vegetables, packaged foodstuffs, and medicines come to mind STOCK IN TIME

  13. NEW PRODUCT LAUNCHES 5 For businesses dealing with a completely radical product category that is new to the market, it’s best to carry some safety stock until demand can be reasonably forecasted IDEAL LEVEL OF STOCK

  14. HOW TO CALCULATE SAFETY STOCK? Safety Stock = (Max Daily Sales * Max Lead Time) – (Avg Daily Sales * Avg Lead Time) FORMULA

  15. SAFETY STOCK CALCULATION FORMULA Furry Beer Can Coolers from Australia Safety Stock Implementation

  16. FURRY BEER CAN COOLERS FROM AUSTRALIA A Sell like hotcakes as sunburnt tourists buy them in the dozen as souvenirs. They come in various designs based on Australian marsupial animals such as the koala, kangaroo, wombat and possum SEASONAL FACTORS

  17. SAFETY STOCK CALCULATION FORMULA B From this we can glean the following figures Maximum Daily Sales = 128 units Average Daily Sales = 64 units Maximum Lead Time in Days = 45 days Average Lead Time in Days = 30 days We then plug these figures into the simple formula SEASONAL FACTORS Safety Stock = (128 * 45) – (64 * 30) = 5,760 - 1,920 = 3,840 units

  18. SAFETY STOCK IMPLEMENTATION C Formula suggests that you should carry about 1-2 month’s worth of safety stock to cover for days where sales spike and typical ordinary days INVENTORY METRICS

  19. KEEPING SAFETY STOCK SHOULD BE AN INTEGRAL PART OF BUSINESS

  20. MORE INFORMATION www.Emergeapp.net/Wholesale-business/Safety-stock-calculation/

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