6 Best Safety Stock Formulas: Calculation & Examples in Excel (Full TUTORIAL)
Download the EXCEL Safety Stock Calculator: abcsupplychain.com/download-s...
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In this world of uncertainty, it feels good to have more safety stock:
-Unpredictable demand 📊 🧻
-Pandemic 😷
-Inflation 💰
-Suppliers delays 🏭
-Events like the Suez Canal block ⛴
-Transport crisis 🚚
-Global shortages 📱
-Geopolitical tension 🌍
However, we cannot have infinite stock to cover infinite issues.
Most companies tend to increase manually their safety stocks before realizing that they don't have any cash flow left...
Then they reduce their stocks too much and face dramatic shortages 🤯
In addition, maintaining high safety stock is a trick to hide the root causes of our problems:
-Poor forecast accuracy 📈
-Poor data accuracy 🧑💻
-Manual processes 🥵
-Outdated IT systems (ERP, WMS, TMS ...) 💾
-Lack of visibility 🧐
-Lack of communication with suppliers 🤺
-Lack of skills & training 🧑🏫
In this new video step-by-step tutorial, I explain :
-The 6 FORMULAS to calculate safety stock in EXCEL
-The “old school” method from my grandpa 👴
-The one I recommend for you today
-How to combine EOQ with Safety Stock
-How to calculate the Re-Order-Point
-The limitations of the Normal distribution method
-The Future of safety stock (new methods)
-Examples in EXCEL that you can download below the video
-The action plan to start optimizing your inventory TODAY 🚀
I try to keep it simple ;-)
Let me know in the comments, what your favorite method is and how you face uncertainty 😁
Enjoy my Excel !
Edouard
▬▬▬▬▬▬▬▬▬▬▬ CHAPTERS ▬▬▬▬▬▬▬▬▬▬▬▬
Safety Stock Calculation in Excel:
00:00 Safety Stock Introduction
00:44 Safety Stock Definition
01:20 Demand Uncertainty
02:12 Lead Time Uncertainty
04:11 Economic Order Quantity (EOQ)
04:49 Reorder Point
05:30 Safety Stock Goals
07:06 Basic Safety Stock formula
08:47 Average - Max formula
12:12 Normal Distribution
14:22 Safety Stock Calculation Method 3 (demand uncertainty)
16:06 Safety Stock Calculation Method 4 (lead time uncertainty)
17:16 Safety Stock Calculation Method 5 (lead time & demand uncertainty)
18:31 Safety Stock Calculation Method 6 (lead time & demand are dependent)
19:19 Normal Distribution limits
20:40 Tip: ABC XYZ Classification
21:15 Other Safety Stock methods
22:12 How to choose the right method?
23:20 Safety Stock: Action Plan
MY BLOG: abcsupplychain.com
#supplychain #inventorymanagement #safetystock
Пікірлер: 106
Brilliant tutorials. Congrats on the content, very useful and very well explained.
Hi Eduardo, thanks a lot for your video. Amazing & make me learn safety stock level in simple way. Thanks
Brilliant tutorials. Congrats on the content, very useful and very valuable
Thank you, really great! short, informative and precise as always.
@abcsc
2 жыл бұрын
Thank you very much for your feedback Albina 🙌 I try to keep it simple while sharing my experience ;)
Hi Eduardo, thank you so much for the great knowledge
Hi Eduardo great stuff loved your presentation / tutorial.
Boss thank you. This is bestest video I have ever gone through. And it's practical. Thanks a ton as I have utilised this method and got the results that I required.
@abcsc
2 жыл бұрын
I am gald it helped Sourav, thank you very much for your feedback!
Great video, so professional!
great work bro !! nicely done
It’s great, thank you so much!
Thanks for the video, very helpful
Absolutely great! Right to the point.
@abcsc
Жыл бұрын
Great to hear!
Thank You so much!
very useful & explained well ... Learning
What a fantastic tutorial! Thank you so much! What if demand per day is not quite stable (internal equipment ordering), so we review stock based every 3rd week. Should i still use AVG daily demand in the method3 or it can be safely replaced by an AVG 3-week demand? I appreciate your advice!
Thanks for sharing comprehensive video.
@abcsc
2 жыл бұрын
My pleasure!
Hi Eduardo, thanks for this amazing video, I learnt so much! May I know what lead time is this related to? Is it lead time of the materials from suppliers or lead time of the production of finished goods?
I love your scm videos!
@abcsc
2 жыл бұрын
Glad you liked them!
Great content. Good work!
@abcsc
Жыл бұрын
Thank you!
As Usual very interesting and informative videos Keep it up Eduardo. Thanks
@abcsc
2 жыл бұрын
Many thanks! 🙏
Very nice tutorial buddy
Cool, thank you
Merci Beaucoup pour vos vidéos les concepts sont plus clairs pour moi. Merci !
@abcsc
Жыл бұрын
Avec plaisir Elliot!
great videos , very interesting
Brilliant information. Thankyou for your videos, i've been very helpful with this video. But, i really wanna ask where can i read the jurnal or books that showed and explain estimating safety stock with other safety stock methods such as binomial dist, etc? Thankyou
Good education video. Its help me a lot
@abcsc
2 жыл бұрын
Glad it helped!
I have an interview tomorrow for a new job and your videos are on point :)
@abcsc
2 жыл бұрын
Good Timing!
Thank you sir for your amazing video, it's so helpful and well-explained! My question is: The factory I work at uses a weekly production plan, so can I use the unit 'sales/month' unit? if not, then how can I calculate safety stock for sales/week unit? thank you
Great video very helpful thank you
@abcsc
Жыл бұрын
Very welcome!
@abcsc
Жыл бұрын
Hi, if you know your safety stock levels for your end products, then you can deduct the safety stock of your raw materials through Bill of Materials or something similar
wonderful
@abcsc
2 жыл бұрын
Thank you! Cheers!
Very informative. I plan to get formal education for managing inventory
@abcsc
Жыл бұрын
Great initiative!
@user-wh4ke3rd5u
Жыл бұрын
@@abcsc I have related material, can you explain them in your channel i will send them by email. Please send me your email sir.
Very nice video but I have one question. If you have an online shop with hundreds of SKU's how it can be possible to fill for each one the sales/month and lead time in order to use the Normal Distribution Method? I mean it is possible but it will take months.
Hello thanks for video. Question: the safety stock should be on top of the average consumption correct? Meaniny if we place an order the order quantity should be average consumption + safety stock ? Thanks😊
great content. What about skewed right distributions? is there a formula or an approach for SS? thanks
@abcsc
2 жыл бұрын
Hi Daniel, glad you liked it! If you're good at statistics, you can try gamma distributions for that 😉
Great job man! simple and clear. just a question, what if for example I have historical sales data for 5 years (20 Quarters) (I use Quarters) , can I calculate my safety stock based on it? Or it has to be one year ?
@abcsc
2 жыл бұрын
Thank you Mohammed! Of course, 5 years of historical data is good enough. Calculate your safety stock as shown in the video, with the average daily sales using the two most recent quarters.
Great videos! Question, for the normal distribution method you explained it does not work with very low demand. How much is very low demand?
@abcsc
Жыл бұрын
Hi Jose, I think you can't use this method when your demand is getting a more intermittent pattern, with long periods of time of 0 quantities. It can happen with "low demand" profiles (not only) but of course everything is relative
Great video I was looking for a more robust calculation. Question: What happens if my SS + EOQ is less than my ROP?
@abcsc
Жыл бұрын
Thank you Daniel. Great question. Then you order more frequently the EOQ, you don't wait for your stock to reach the SS level. If you already reached the SS level or you have a stockout, You need to make one big order to reach again the ROP, and then you can order the EOQ frequently. I talk about those subjects in my Inventory Management course: abcsupplychain.com/inventory-management-course/
Great video. Thank you from Mongolia :) I have one question by saying "low volumes" and "high volumes" when talking about normal distribution. What is the demand quantity range for low volumes?
@abcsc
Жыл бұрын
Hi Munkh-Ochir, I would say that when your demand is getting a more intermittent pattern, with long periods of time of 0 quantities. It can happen with "low demand" profiles but of course everything is relative
Thanks for the great video! Question, at the end you say that if we don't have data on lead time, we should use method 3... but on method 3 you use average lead time... what value should we use there if we have no lead time data?
@abcsc
2 жыл бұрын
Hi Alain. It is impossible to calculate the safety stock without lead time. Just ask your supplier what the lead time is ;). I was talking about historical data of lead time, if you don't have it then you cannot estimate the lead time uncertainty, so you can only use method 3 (uncertainty only about demand).
Thank you for sharing. By the way how do you determine Safety Day?
@abcsc
2 жыл бұрын
Arbitrarily ;)
which is the reason to apply the sqrt in the lead time ? (for method 3)
thank you for very helpful lecture. I would like to know how can I use demand forecast accuracy instead of deviation
@abcsc
Жыл бұрын
Yes it is even better!
@abcsc
Жыл бұрын
I am very glad you enjoyed it!
Dear Mr Eduard thanks for the tutorials, but i rlly wanna ask, on ur example u hv 10delivery and im confuse to apply that on my data. so what if i just have data like, actual sales/month and 120days LT (4month). how can i calculate that based on ur excel (normal distribution method sheet)? please help me, thanks
Thank you for sharing your knowledge, please continue your sharing, I´m trying to download the excel file but unable to receive it in the mail.
@abcsc
2 жыл бұрын
Thank you for your feedback! You can send a mail to contact@abcsupplychain.com
Thank you so much for your video Eduardo, very impressive and easy to understand. I am familiar with six sigma and normal distribution, so this is an excellent example of its application in inventory control. Just one comment, considering your example, could you kindly explain why is the reorder point so big (1,345)? Should it be a complement for the annual (12,000) or monthly demands (1,000) or the EOQ value? Thanks for your great work!
@abcsc
3 ай бұрын
Hi Tomas, thank you very much for your positive feedback. The Reorder point is "big" because the lead time is "big" too. You need to cover the average demand, which is 1000/month. The lead time is 35 days or 1.15 months. 1000*1.15=1,150. Which is the minimum value you need without safety stock. With safety stock, it is 1,345
Hello Eduardo, thank you so much for this amazing video. Could you please explain why the calculations in methods 3,4,5 and 6 for the reorder point is calculated in days, while the safety stock is calculated in month?
@abcsc
5 ай бұрын
Hi Aya, you're welcome! Reorder Point is not a time value. It is the quantity limit that triggers an order. In my example, Reorder Point is 1345 pcs for method 3
Wonderful content! A question: how is the coeff service calculated? I added the NORMSINV formula to my table but got an error. Is this specific to each item or a general table? Thanks in advance.
@abcsc
2 жыл бұрын
It is calculated with the service level you choose, as shown in the file. You can not choose a service level higher than 100% otherwise you will get an error.
How did you find the lead time standard deviation in method 4 ?
? - what if you have a forecast that is ~70% accurate form your sales team and they run promotions that create this volatility and your historical demand data is impacted by stock outs, reducing sales. Would you take your historical sales plus the cases cut to provide a more accurate sales # for the historical data? also - factoring in that with these promotions, but forecast on an item might swing from 4000 units sold to 1000 sold month to month but the forecast was 3000 and 2000 respective?
I love the Method 3, but i have a question about a HIGH Level of Demand Standard Deviation Or when my consume "Sales" have some period without it cause of some factors like Stock Break, change of another product, Etc
@abcsc
Ай бұрын
Thank you for the feedback. If you have high level of demand standard deviation, then the formula remains the same, you will just have higher safety stock. If you have stockouts as you say, you may want to clean your past sales (get rid of the 0, =stockout correction) before calculating your safety stock, to capture unconstrained demand
Hi, brilliant tutorial. Unfortunately I didn't receive the download link to my email
Please, i need you to reply to this asap, im about to do something important with your help tomorrow, So on 15:25, why do you use sales datas on demand standard deviation, arent they different? If thats not okay to consider that as a same, is the formula for method number 5 will be different? Or we can still use it cause its okay to cosider that as the same for safety stock formula
Thank you, its great video. I would like to ask more details about Method 5 and 6. In method 5, what is the meaning of sqrt after Z score? Why it need to be sqrt of (L x Variance 1 + Mean × Variance) but not L × Std Dev 1 + Mean x Std Dev 2? Thank in advance, Hai
@abcsc
Жыл бұрын
Hi Hai, thank you for your feedback! About the calculation details, you can find all the details here: abcsupplychain.com/safety-stock-formula-calculation/
@abcsc
Жыл бұрын
Of Course John, all our course here: abcsupplychain.com/courses-supply-chain-logistics/
Hi if demand is not normal how to calculate SS?
How and which method should I use for long list of Items and I can apply the formula in tabular format to all the items on the list (600 Items)
@abcsc
2 жыл бұрын
Hi! You can pick the formula you want, knowing the pros and cons of each one. I advocate for 3 and 5
Great work and thanks for sharing. Can you help me? I´m trying to download the excel file but the website didn´t send me it.
@abcsc
2 жыл бұрын
Hi Guilherme, thank you! Make sure it is not in your spam folder. If you still didn't receive it, send an email to contact@abcsupplychain.com
@_PutZ_
2 жыл бұрын
@@abcsc got it! thank.
I would like to be mentored and trained in Inventory analysis using excel using your platform. kindly advise how I ca go about registering. Can you be my trainer? I admire your guru knowledge in Excel inventory analysis and I want to be like you. Advice
Hi.. How to arrive safety stock for rawmaterial ? Can u plz guide me.
@abcsc
Жыл бұрын
Hi Raja, if you know the SS for the end product, then you can guess the SS of your raw material using the bill of materials or something similar
Is it the production lead time in days used in your sheet
@abcsc
Жыл бұрын
Hi! It is the total lead time, more about lead time here: kzread.info/dash/bejne/ZnyCraaNf9nXh7g.html
Would you be able to give me the sources of the formulas chosen in this video? Or explain how you got to them. I want to use them for my graduation research in Logistics, but I need verification that the formulas are from studies.
@abcsc
5 ай бұрын
Those formulas are well known, many papers discuss them as it is a stochastic problem. I let you do your research 😉
@noahhaans2788
5 ай бұрын
@@abcsc I already found them, thank you for the response :)
I have a quizz need help to solve: which formulas would be applied when: 1/ Production Process is Stable and 2/ Quality of material is stable
@abcsc
2 жыл бұрын
Not sure to understand your question, could you rephrase?
How do you know your order size?
@abcsc
Жыл бұрын
You can use the EOQ: kzread.info/dash/bejne/nXiJlc2Iitiweto.html
@abcsc
Жыл бұрын
Hi Pranav! It is the total lead time
Hii Dear, Can you guide me on how to set up a multichannel infrastructure, So that I can manage all reports in real-time and also want to save data in for future prediction?? #Help
@abcsc
2 жыл бұрын
Maybe my Inventory Management Expert program can help: abcsupplychain.com/inventory-management-course/