Reasons For Safety Stock
Safety stocks are mainly used in a "Make To Stock" manufacturing strategy. This strategy is employed when the lead time of manufacturing is too long to satisfy the customer demand at the right cost/quality/waiting time.
The main goal of safety stocks is to absorb the variability of the customer demand. Indeed, the Production Planning is based on a forecast, which is (by definition) different from the real demand. By absorbing these variations, safety stock improves the customer service level.
By creating a safety stock, you will also prevent stock-outs from other variations :
- an upward trend in the demand
- a problem in the incoming product flow (machinery breakdown, supplies delayed, strike, ...)
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