What is safety stock? Safety stock is a buzzword used by logisticians usually to define a predetermined quantity of additional stock kept on hand to mitigate possible stockouts brought about by unpredictable fluctuations in demand and supply. Appropriate safety stock levels allow business operations to go on as usual despite any unpredictable change in the market.
Safety stock helps maintain an acceptable level of inventory especially during times when demand for goods is high. For instance, if there is high season and sales are expected, it is best to have more stocks on hand so that there is always enough supply to meet customer demands. This also saves the company money, since they do not incur additional operating costs when stocking the stock that has already been sold out.
There are a lot of factors that can affect safety stock levels. The state of the economy is one major factor in determining stock levels. In times of recession or economic instability, companies tend to cut down on business activities. The reduction in sales and other related activities hampers production and raises the amount of inventory that is kept on hand. Economic uncertainty forces companies to make strategic decisions regarding the allocation of resources in terms of costs and profitability.
Certain businesses also experience growth spurts or fluctuations in sales and other indicators. Natural disasters like floods and drought can also lead to shortfalls in inventory levels. Any drastic change in weather patterns can cause supply delays that in turn can affect sales. A company needs to reassess its stock positions to adjust its inventory levels in such circumstances and overcome problems related to fluctuating sales and stock levels.
There are several ways in which a company can keep track of its inventory levels. The most common method is to log on to the company’s web portal and use the current sales and production records to gauge current stock levels. The level of inventory can also be gauged by checking out the stock level of each individual product or department. The use of key performance indicators can help a company to judge its progress in stabilizing its inventory. The key performance indicators available include average sale price, average manufacturing order, and average shipping time. These figures can be used to calculate the safety stock level.
A company needs to keep tabs on its inventory especially during periods of economic instability. A company needs to analyze data on trends in orders and stocks so as to keep its stock levels constant. This ensures that no matter what happens, the company will not be caught off guard and may suffer a loss in production. It is also important to keep track of the company’s future stock requirements. This is because certain products demand a larger amount of stocks in order to be sold in the market. Estimating future stock requirements can help a company plan for these circumstances.
The management team of a company has to prioritize its stocks according to its importance. One area that needs to be attended to is what is safety stock. The management should decide whether the company needs to increase its inventory or reduce its inventory. This decision should be based on factors such as the number of new orders expected, the level of exports, the level of imports, the net income of the company, the net income of the division that produces the product or service, the demand for the product or service, and the competition.
There are many other considerations that need to be made when determining what is safety stock. Some companies have their own unique inventory policies. One of these policies may dictate the amount of shares that an employee can have access to. Other policies may specify the date on which an employee can begin selling the stocks in his or her possession. It is necessary that a company keep track of what is safety stock in order to determine what is needed in order to meet its supply requirements during economic fluctuations.