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2013/12/19

People and processes: The key to improving safety stock?

People and processes the key to improving

By Howard Roddie, Senior Supply Chain Consultant (@HowardRoddie)

Talking  to a new customer this week, I was struck by how little some of the fundamental supply chain questions have changed over time.  The issues discussed were the same as when I started my supply chain career as a tea making executive in the ’60’s.

The need to set the correct level of safety stock is as important now as it has always been.  The usual driver for this is the need to reduce working capital, whilst maintaining service levels and reducing waste.  The pressure on safety stock levels is nearly always downwards.

Our customers know all about the factors that determine theoretical levels – lead times, forecast variability, desired service levels and so on.  They often ask us for the tools to calculate the ideal levels.  Yet how many supply chain professionals actually use these theoretical levels in the real world?

The answer is, actually, very few.  Where it is calculated, it is often used as a comparison to a simple safety time calculation.  Why is this?  Well firstly, given the need for 99%+ service levels, even relatively low levels of forecast variability can lead to unacceptably high levels of stock, especially of perishable products and those with high rates of obsolescence.  In some cases we even see the maximum stock level to prevent waste at a lower level than the theoretical 99% level..

Now, you would think this would lead to waste or poor service levels; but this doesn’t pan out in the real world.  OK, when we are talking sandwiches, service levels at the traditional SKU level is not as important as the range level.  Even as we talk about non-substitutable products with batch sizes involved, most of our customers work well below the theoretical levels.  Typically the levels they work at would suggest service levels in the low 80’s, but they are achieving 99%+.  How can they do this?  The answer is to remember that systems are tools and not magic number generators.  People are often the key.  Informed and visible collaboration between sales, demand and supply planners through to production and suppliers is vital in this.

We should always strive to give knowledgeable people the right tools and training .  Crucially, users need confidence in their outputs, both in terms of the numbers and focus on the right areas.  The ability to quickly visualise and share crucial data helps to speed up the decision making process.  Once we have this in place, we can empower them to make informed decisions, then the magic can begin to happen.

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