Safety Stock - a misleading solution
Season Three, Episode Eleven
A Safety Stock Illustration
Let’s use eggs and your family breakfast to illustrate how safety stock actually works.
Typically, your family uses three eggs per day, so you set a safety stock level of six (two days worth). This means you never intend to have less than six eggs. That way, you should not have to rush to the grocery store just because of eggs.
You post a tracking sheet on the refrigerator so everyone can help keep track.
Your son is supposed to make breakfast this morning. When he goes to the refrigerator, he sees that there are six eggs left. This is his first time to notice the breach of safety stock, so he excitedly rushes to you and says (as you have instructed), “We need eggs right now!”
Well, that’s the way MRP works, right? Reacts just like you have zero eggs.
So, you rush to the store and buy two dozen eggs. You normally buy only one dozen, but you certainly don’t want to have to panic again, so you go with two dozen today. “I’ll sort out the issue later,” you think to yourself.
You return home and open the fridge door to put the eggs away. That’s when you realize that you still have six eggs, more than enough for today. You didn’t need to rush for the eggs. You could have just added them to your regular grocery list.
Normally, it’s you who sees the eggs in the fridge, but you’re depending on others to follow the system that you set up. If you had seen the eggs, you would have known to ignore the message that your own system is sending you.
But, your son was in such a panic and excited to let you know of this “emergency” that you didn’t really take time to think about it. You just reacted. Maybe even over-reacted.
Now, you have thirty eggs. You’ll use three today, so twenty seven left. Fully nine days worth of eggs. Not to mention extra space used to hold the eggs in the fridge.
When illustrated this simply, safety stock seems like a misleading solution. It works if there are a small number of items and if an experienced person is viewing the “expedite” list. But for everyone else, it causes quite a bit of chaos.
Up until now, it’s the only system we’ve had.
What if our system created a target inventory and gave a number (percentage) as a status report. For example, my target inventory is six eggs. When I have six eggs in the fridge, I have 100%. Anything below 100% is a warning. And anything at or below 50% is urgent. Clearly we can differentiate between a 90% status and a 30% status. One is much more urgent.
Isn’t this infinitely more useful than safety stock? And, ultimately a much more elegant solution?
Yes. Yes it is. Ask me about Demand Driven MRP because it’s better than safety stock.
John Melbye, DDPP, DDLP, CSCP
I help supply chain professionals to stop managing chaos through training, advising, and consulting services. The solution exists.