Safety stock optimisation can help ensure you meet demand thus helping to boost profits. However, holding excessive amounts of buffer stock can be a huge drain on resources. How can you calculate safety stock to find the perfect balance?
Something unexpected could always happen and customers never buy exactly what we expect. For instance, some customers buy more stock, some customers buy less, some switch to other products while other customers completely new to us. As a result, when forecasting demand, there is always a degree of uncertainty. To manage this ambiguity, you have to hold some form of safety stock. If you could be a 100% sure that your forecasts were perfectly accurate, safety stocks would be a waste. However, given the various influences on demand patterns, deciding how much buffer stock to hold is an important decision.