What Is Safety Stock? How It Can Be Determined?
What Is a Safety Stock?
The extra quantity of a product that is stored inside the warehouse to make sure that products remain in stock and an out-of-stock situation that can be avoided is called safety stock. If you manage to maintain this stock successfully, it will serve as insurance in situations where the demand is high. Maintaining it will help you to avoid a situation where you are running out of stock. Think of it this way, safety stocks will create security for you for times when time is short and products cannot be arranged as fast by your suppliers. You can simply rely on the extra stock to take care of situations where you are running out of stock. GrofleX inventory software is one of the best options for you to make sure that various issues related to the shipment, repeated orders, and over and understocks can be kept at bay. Tracking will be made easy and your business will run smoothly. As your products will always be in stock, you might make more profit as compared to other businesses. If you succeed in maintaining safety stock successfully, then you need not be worried about when your next batch will get delivered.
Reasons to Maintain Safety Stock
1. Protection from Unexpected Variation in Supply
For instance, your supplier has to close unexpectedly for the week and you are running out of stock. This can cause an ugly business situation. So in order to avoid wasting your precious time like this, it is better to stick with safety stock. In this way, your supply will last longer and you will be able to work smoothly. Worried about inventory management? GrofleX has got your back. With its advanced features, GrofleX will take care of all your inventory issues and concerns.
2. Prevent Disruptions in Deliveries or Manufacturing
One of the main purposes of keeping extra stock is to maintain the service levels of your customers and keep them high. In this way, your supply chain will keep running conveniently. With the help of GrofleX inventory software, you need not be worried about those disruptions at all.
3. Compensation for Inaccuracies in Forecast
You might have estimated a certain number of items for one month but in the same month your products sell more than you expected and now you need more stock. Now, with buffer stock lying in your warehouse, you don’t have to disappoint your customers.
How to Calculate Safety Stock?
At times it can get challenging as a retailer to calculate the amount of safety stock levels that you should be arranging for your business. It is convenient to stock enough products that can last until one shipment (or two). Keep in mind that the more stock you maintain, the higher your chances of earning. So it is recommended to maintain safety stock at all costs. You may be wondering how safety stock can be calculated. Simply use the formula below.
- Multiply the maximum usage that is done daily by your maximum lead time in days.
- Multiply your average lead time in days by your average usage done daily.
- Calculate the difference that you have obtained from the above two to calculate Safety Stock.
From the above calculator, it becomes quite easy for small and medium-sized businesses to calculate safety stock. Once you have successfully calculated it, you will be able to analyze the situation of your inventory and manage it in an efficient way. You can also trust GrofleX with managing your inventory as it is a very reliable accounting software that is available for you.
Factors That Determine the Level of Safety Stock
There are three main factors that need to be considered while calculating safety stock:
1. Confidence Factor
Each item in the system of GrofleX contains a confidence factor that is quite essential when trying to determine the buffer stock. You can achieve this by applying a higher confidence factor to an item and then witnessing how it stays in stock for a long period of time. This is a factor that must be considered while calculating safety stock.
2. Sale History
It is obvious that the more powerful history each item has of sales, the better will be the forecast. Seasonal trends can be picked up by reliable accounting software to calculate safety stocks. This can be done in presence of sufficient data points.
3. Order Period
As safety stock is calculated concerning the order period, therefore the chart of items can go up to days, weeks, and even months. But regardless of the time scale, the stock will still be displayed in a horizontal line. Keeping these important factors in mind while calculating of safety stock, everything will run smoothly. You can always depend on GrofleX as it is one of the best accounting and inventory tools available in the market. For example, the basic formula is to take into account the number of items sold per day and the stock that you want to hold at any given time. If you sell 200 products on a daily basis then the worth of safety stock you intend to have is of five days. According to the formula mentioned above, the total number of products (200) x 5 days will provide you a safety stock of 1000 units.
Conclusion
From the above discussion, we can conclude that safety stock is an essential factor to keep the business running smoothly. As there are numerous steps when it comes to determining safety stocks, GrofleX will help with inventory management and take care of all your needs. We will make sure to manage all your items and safety stock exactly as you need them. With GrofleX, you need not be worried about your stock being calculated properly if the factors are being considered and so on. So what are you waiting for, download GrofleX today and let things run faster again!
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