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Safety Stock Calculations January 29, 2007

Posted by Lawrence Loucka in : Definitions, Lean Sigma, Logistics, Sigma, Supply Chain , 2comments

When I first learned inventory planning the math was rather simple.  On top of the cycle stock (expected demand during lead time) I would add a percentage or a number of days.  Here’s a web app that uses this percentage approach.  If the lead time was 2 weeks I  might carry 3 or 4.  I soon learned that demand for some inventory items is more volatile than others, and some suppliers less reliable than others.  I’d either have too much or not enough, and I’d never get in trouble for having a little too much.  So I started using (average demand * lead time) + (one sided Z factor * demand standard deviation) for the target inventory level; a little better approach.

Here’s another formula from Inventory Management Review; Safety Stock:  {Z * SQRT (Avg. Lead Time * Standard Deviation of Demand ^2 + Avg. Demand ^2 * Standard Deviation of Lead Time ^2}.

Over at QuickMBA ; To calculate the safety stock, first calculate the standard loss function, designated as L(z). This function is dependent on the values of the desired fill rate  f,  the demand  μ  and its standard deviation  σ ,  the time between orders  p,  and the replenishment lead time l : L(z)  =  ( 1 - f ) µ p / σ  ( p + l )1/2.  Once L(z) is known, z can be found in a look-up table and the safety stock can be calculated by: Safety Stock  =  z σ ( p + l )1/2

Here’s a new one recently published by Kent Linford in the APICS Magazine Nov/Dec 2006.  SS = √ [( σFE)2 x (LTI/FI)beta + ( σLT)2 x D2] x Z x (FI/OCI)beta

Where:

SS = safety stock
FE = forecast error
LT = lead time interval
FI = forecast interval
pick a beta between 0.5 and 0.7
D = average demand during lead time
Z = normal distribution service factor based on desired service level
OCI = order cycle interval

Dave Piasecki at InventoryOps.com uses; safety stock = (standard deviation)*(service factor)*(lead-time factor)*(order cycle factor)*(forecast-to-mean-demand factor)
Jon Schreibfeder has anoher approach.

Got any other versions?

Demand Segmentation Definition November 29, 2006

Posted by Lawrence Loucka in : Definitions, Lean, Supply Chain , add a comment

A graphical representation of the sales/consumption volume of products vs. demand variability.  High volume low demand variability products are treated differently than low volume high demand variability.  This technique is more informative than ABC or P-Q.

Demand Segmentation

Source: Blair R. Williams, Manufacturing for survival: the how to guide for practitioners and managers (Reading Massachusetts: Addison-Wesley), 1996, pp 281 - 286.

 

 

 

Demand Variation is measure of the volatility of sales in the market place.  Can be expressed as either:

  1. Standard deviation of the demand over time divided by the mean (Coefficient of Variation Cv), or
  2. the ratio of: the peak to base demand divided by the average demand , or
  3. the ratio of: the average demand to 6 sigma

Kanban Calculation July 7, 2006

Posted by Lawrence Loucka in : Lean, Lean Sigma, Supply Chain , 6comments

Kanban Card"That’s not the formula I use" was the start of the debate. So looking at a few refernce books and searching the web here’s what I’ve come up with. How can something so simple have so many variations?  Let us count the ways …

 

 

1. No. of kanban = (DD*LT+SS*SQRT(LT/TB))/KB+(DD*EPEI)/KB

2. #KB = (DD*(LT+SS))/KBS +1

3. Total Req’d Inventory = (Average period demand * Replenishment time) + 1 or 2sigma + safety stock

4. Total Req’d Inventory = (Average period demand * Replenishment time) * 1.X  {where X= 20-40%} and the # of bins = TRI / container or bin size

5.  # Kanban = ((AD * RT) + (SF * SD))/SCQ

6.  # Kanban = (average demand during lead tiime + safety stock) / container quantity 6. N = (dL + S)/C

7. K=((RT * AC)/Cont) * (SF + C)

Got any more?

Certified Supply Chain Professional May 19, 2006

Posted by Lawrence Loucka in : Consulting, Logistics, Supply Chain , add a comment

APICSThe Certified Supply Chain Professional is the new industry certification program sponsored by the American Production and Inventory Control Society to meet the rapidly changing needs of the supply chain management field. The CSCP designation recognizes professionals who have demonstrated their knowledge and experience of supply chain management. Does your supply chain need a tune up? Not sure if your team is working on the right stuff? Do you want to catch up with your competitors, or take a left turn and cut them off?

Larry Loucka, CSCP

Kaizen isn’t an event April 14, 2006

Posted by Lawrence Loucka in : Consulting, Lean, Logistics, Supply Chain , add a comment

“Kaizen, or continuous improvement, isn’t something you do once. It’s a way of life.” I said. The VP gave me a funny look. “OK let’s start from the beginning…”

This poor VP has a 600,000 sq ft distribution center on the west coast that had done two kaizen events a year ago. “We’re not getting the productivity we had designed.”

You know the rest of the story, right?  Kaizen is a process, not an event!