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?


Safety stock is that point, where the user finds a comfort zone between overstock and understock situation. It is defined as the buffer inventory have to be kept to deal with differences between supply and demand. There are different variables to be considered while determining safety stock. In this writing there is an effort to establish a model that include direct and indirect cost related to inventory. The 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 used in this model. This model works with economic order quantity, regression, and forecasting error calculation to estimate safety stock while reducing human judgment error in the calculation.

Keywords: Dependent Variables, Direct and Indirect Inventory Cost, Safety Stock, Uncertain Demand.

Source: Sharfuddin Lisan,
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