Supply Chains: A Manager's Guide

Maintaining Safety Stock

The two preceding sections dealt with the questions of when to replenish inventory and how much to buy on each order. The present section tackles the third question: How much inventory should a facility maintain on site? The quantities calculated in the EOQ model provide a lower bound on this number; there should always be enough stock on hand to satisfy demand during the replenishment lead time. But these calculations are based on average figures for demand and supply. In reality, the number of units sold varies from day to day, shipments are delivered late, goods arrive in an unusable condition, and so on. If any of these events causes a stockout, customer orders go unfilled. There is no margin for error in the basic ...