Determining Safety Stock with Uncertain Demand
Read this article. It concludes by suggesting that errors in ordering safety stock can be affected by costs, time, and human error. What other factors should a company consider when ordering safety stock to avoid uncertainty?
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.