{"id":186,"date":"2017-11-15T15:33:48","date_gmt":"2017-11-15T15:33:48","guid":{"rendered":"http:\/\/www.freightcrunch.com\/blog\/?p=186"},"modified":"2017-11-15T15:33:48","modified_gmt":"2017-11-15T15:33:48","slug":"safety-stock-reorder-point","status":"publish","type":"post","link":"http:\/\/www.freightcrunch.com\/blog\/2017\/11\/15\/safety-stock-reorder-point\/","title":{"rendered":"Safety Stock Reorder Point: Just Reorder When You Hit The Safety Stock"},"content":{"rendered":"

Just reorder when you hit the safety stock<\/h1>\n

Both working as a supply chain consultant and as an employee in a supply chain department, I was tasked to lower the safety stock as a cost reduction project, of course without impacting our service levels towards our customers. When discussing strategies with the supply chain managers and analysts, I often heard the phrase \u2018we can\u2019t lower our safety stocks, because we re-order when the inventory level hits the safety stock level and it needs to cover the ordering lead time\u2019.<\/p>\n

There are two inventory management concepts being mixed up here: safety stock and re-order point. Let\u2019s clear this out.<\/p>\n

Re-order point<\/h2>\n

A reorder point<\/a> is a certain stock level where, when your inventory level hits that particular level, you reorder the product at your supplier. While your supplier is manufacturing and shipping the product to you, you continue to service your customers with the remaining inventory.<\/p>\n

In its most basic form, the re-order point is a fixed value like e.g. 1000 pieces of a certain product. There are more elaborate implementations, such as a re-order point expressed as a certain coverage of past consumption or future demand. E.g. you can configure a re-order point equal to the total amount of the next 3 weeks of the forecast.<\/p>\n

Reorder point ordering is something we all use daily. Only one bottle milk left? Let\u2019s go to the store. It\u2019s still surprisingly often used in companies. The advantages are that\u2019s is simple, easy to understand, easy to manage and easy to automate. The drawbacks are that it doesn\u2019t cope well with high fluctuations in demand or supply and seasonality. It makes little sense to re-order your Christmas trees in January because your stock dropped below the reorder point. This example might seem silly, but once you\u2019re managing thousands of products and they become just codes in an ERP system, it becomes easy to miss these things.<\/p>\n

The more advanced implementations of re-order point ordering, often supported by ERP systems, can mitigate these negatives, but often have their own drawbacks. E.g. expressing your re-order point as covering the next 3 weeks of the forecast will create a bullwhip effect when the forecast shoots up significantly.<\/p>\n

In my opinion, re-order point ordering is a great tool to use for low-value items with a reliable supply. E.g. if you\u2019re a packaging operation, you need a lot of stickers. You can get standard stickers anywhere and they don\u2019t cost much. This is a great item to use this method for.<\/p>\n

Safety stock<\/h2>\n

A safety stock is a certain level of inventory used to cope with uncertainty, either uncertainty from the supply side or from the demand side, or both of course.<\/p>\n

Some examples I\u2019ve encountered that generate uncertainty:<\/p>\n