Determining Safety Stock with Uncertain Demand

Conclusion

This is a comprehensive model that considers different factors in safety stock determination both direct and indirect cost related. There is inclusion of Ordering cost, holding cost, Product price, Time, Demand, Demand Variation, Lead time, Mean lead time, Errors in Forecasting, Deviation of lead time etc. are considered in this safety stock calculation. Following this model, not only two factors (as we used demand and lead time), more than two factors could be used to determine safety stock. The best thing of this model is none of the data used are from human judgment, all the data are derived from different calculations we had before head.

There could be limitations in this model, just like every other model has. But the limitation could be corrected when applied in the real working scenario. This way this model will more purified and applicable to all users of safety stock.