Safety Stock Calculation for Your Wholesale Distribution Business

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SAFETY STOCK CALCULATION FOR YOUR WHOLESALE
DISTRIBUTION BUSINESS
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When youre running a busy wholesale and
distribution business
You face the risk of stockouts EVERY DAY
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Despite your best efforts in forecasting sales
and adjusting for seasonal demand, you cannot
completely predict or have any control over the
supply and demand for your products
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YOU ARE JUST A PLAYER IN A COMPLEX SUPPLY CHAIN
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Allow a margin of error and provide extra stock
to minimize out-of-stock situations
THE NEXT BIG THING
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WHY IT MATTERS TO YOUR BUSINESS
What is Safety Stock
Calculating safety stock
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WHAT IS SAFETY STOCK?
Safety stock doesnt refer to the first aid kit
that you keep in the office. It commonly
describes the additional stock that you keep in
your inventory to reduce the risk of stockouts
OUT-OF-STOCK SCENARIOS
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WHY IS SAFETY STOCK IMPORTANT?
Keeping safety stock is critical for your
business. In addition to smoothing out unexpected
swings in demand and supply, buffer stock also
influences the optimal inventory level, stocking
of time-sensitive goods and plays a part in new
product launches
CUSTOMER SATISFACTION
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UPSWINGS IN DEMAND
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These short-term bursts in demand will drain your
available stock, cause a stock out for that
product, and may even impact your suppliers who
are facing backorders that their production
schedule cannot meet
VIRAL MARKETING
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DROPS IN SUPPLY
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As a wholesaler and distributor, youre just part
of an intricate supply chain. You are wholly
dependent on your suppliers, both local and
overseas, to produce and ship the goods that you
carry. This means that youre also vulnerable to
any impact that your suppliers face
DAMAGE AND CLOSURES
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OPTIMAL INVENTORY LEVEL
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Keeping additional buffer stock introduces all
the usual risks of overstocking. Spending too
much on safety stock means that cash is tied up
in inventory. And it costs money to store and
carry goods
BALANCING  STOCK LEVEL
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TIME-SENSITIVE PRODUCTS
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Overstocking also presents a risk if you deal
with goods that are perishable or have expiry
dates. Fresh fruit and vegetables, packaged
foodstuffs, and medicines come to mind
STOCK IN TIME
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NEW PRODUCT LAUNCHES
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For businesses dealing with a completely radical
product category that is new to the market, its
best to carry some safety stock until demand can
be reasonably forecasted
IDEAL LEVEL OF STOCK
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HOW TO CALCULATE SAFETY STOCK?
Safety Stock (Max Daily Sales Max Lead Time)
(Avg Daily Sales Avg Lead Time)
FORMULA
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SAFETY STOCK CALCULATION FORMULA
Furry Beer Can Coolers from Australia
Safety Stock Implementation
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FURRY BEER CAN COOLERS FROM AUSTRALIA
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Sell like hotcakes as sunburnt tourists buy them
in the dozen as souvenirs. They come in various
designs based on Australian marsupial animals
such as the koala, kangaroo, wombat and possum
SEASONAL FACTORS
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SAFETY STOCK CALCULATION FORMULA
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From this we can glean the following figures
Maximum Daily Sales 128 units Average Daily
Sales 64 units Maximum Lead Time in Days 45
days Average Lead Time in Days 30 days
We then plug these figures into the simple formula
SEASONAL FACTORS
Safety Stock (128 45) (64 30) 5,760 -
1,920 3,840 units
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SAFETY STOCK IMPLEMENTATION
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Formula suggests that you should carry about 1-2
months worth of safety stock to cover for days
where sales spike and typical ordinary days
INVENTORY METRICS
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KEEPING SAFETY STOCK SHOULD BE AN INTEGRAL PART
OF BUSINESS
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MORE INFORMATION
www.Emergeapp.net/Wholesale-business/Safety-stock-
calculation/