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Default Statistical Safety Stock

Updated

 

The Default Statistical Safety Stock screen contains options that control how StockIQ will calculate safety stock values.  Unless you have overrides or other special rules in place, these are usually the safety stock values that are chosen for your Active Safety Stock.

Below is a description of the different options in this screen.  You can override each of these settings for individual items using the Statistical Safety Stock Overrides screen.

  • Selection Method - How should StockIQ select among the different safety stock methods that are enabled?  
    • Auto - Does automatic selection of the most appropriate safety stock method among the available options, as described below.
    • Lowest - Selects the lowest of the enabled methods
    • Highest - Selects the highest of the enabled methods
    • Standard - Uses ONLY the Standard service-level based safety stock calculation
    • Large Regular Pull - Selects Large Regular Pull SS if available, otherwise falls back on the standard method.  See Large Regular Pull Safety Stock for more information.
    • Sporadic Item - Selects the value calculated for the Sporadic SS if available, otherwise falls back on the standard method.  Note that only sporadic items and slow items generally have a Sporadic SS calculated.
    • Retrospective - Selects the value calculated for the Retrospective SS if available, otherwise falls back on the standard method.
  • Is Standard SS Enabled - This is always enabled, meaning that the default, statistically derived method of calculating safety stock is always enabled.
  • Is Large Regular Pull SS Enabled - Sets whether or not Large Regular Pull safety stock is enabled.  This is generally recommended -- see settings for Large Regular Pull calculation factors below.
  • Is Sporadic Item SS Enabled - Sets whether or not Sporadic Safety Stock is enabled.  This is also generally recommended, and is used ONLY for items where the usage pattern is detected as sporadic.  If you will use this, make sure to have the detection limits for sporadic safety stock set in your Inventory Limits screen.
  • Is Retrospective SS Enabled - Sets whether or not retrospective Safety Stock is enabled.  This is not often necessary with the three other methods enabled.

"Auto" Safety Stock Selection Method

The following steps are run in order to choose the safety stock when the "Auto" option is enabled:

  1. StockIQ starts with assuming standard Safety Stock will be used, and this is selected.
  2. If Large Regular Pull is enabled, and it is greater than the standard SS, LRP is selected.
  3. Sporadic SS is used if:
    1. Sporadic Safety Stock is enabled,
    2. The item is sporadic,
    3. We have not already assigned a LRP safety stock
  4. Retrospective SS is used if:
    1. Retrospective SS is enabled
    2. No LRP or Sporadic SS was calculated (recurring item only)
    3. There is a nonzero standard safety stock (recurring item only)

This means that broadly, standard and LRP safety stock values will usually "win" when they are present, and sporadic SS will often take over on sporadic items, with retrospective only being applied when the other methods do not provide a SS value for whatever reason.

 

Standard SS Options

Max Percentage of Demand over Lead Time - Allows you to define what maximum percentage of your demand-over-lead-time your safety stock value is allowed to be.  For example, if you have a monthly usage of 100 units, and lead time is 2 months, with a max percentage of 75%, this would mean your max calculated SS by StockIQ would be 100 * 2 * 0.75 = 150 units.  This is used to prevent artificially high safety stocks when unnecessary.  However, normally you will leave this blank, since highly volatile items with short lead times can benefit from safety stock that is more than 100% of the average usage over lead time in order to protect against stock outs.

Is Exponential Safety Stock Allowed - Most of the time when calculating safety stock, the assumption is made that demand is normally distributed when calculating a safety stock to a service level target.  However, StockIQ will test this assumption, and if it finds that the demand history for the item does not appear to be normally distributed, it will calculate safety stock using an exponential distribution instead, leading to higher (but more accurate) safety stock values for items where this is appropriate.

Reduce Safety Stock for Large Min / Mult - Sometimes called "Net Service Level", this feature will reduce the effective service level target in response to items that have very large min order quantity or order multiple quantities, relative to their usage.  The logic here is that if you have to order a large amount of something, you will have a large service level merely by virtue of having such large quantities in stock on average, and therefore you need less of a buffer of safety stock, since your large cycle stock quantity will provide service level on its own.  This option is not commonly used.

Minimum Typical Order Qtys for Items with Forecast - This setting allows you to specify a minimum standard safety stock for items that have at least SOME forecast, in terms of that item's Typical Order Quantity.  This is most useful when set to 1, which ensures that any item with at least some forecast has its safety stock rounded up to whatever the most common purchase quantity is, rather than possibly resulting in zero if the raw calculation calls for less than 1/2 unit of safety stock.

 

Large Regular Pull Options

Large Regular Pull Nth Largest - Large Regular Pull normally looks for the 3rd largest order within your months-back horizon to set as a reasonable "here's how big we should plan to cover", so that we don't stock to one or two unusually large orders, if there happen to be even larger outliers for which stocking would be too unreasonable.  Both independent and dependent history is checked, so that components with no direct sales can also be stocked adequately.

Large Regular Pull Months Back - How far back the LRP logic should look when trying to see if there is a pattern of repeated, large pulls.  12 months is a good guideline here.

Large Regular Pull Recent Actuals Threshold - StockIQ will compare demand history from the last year versus demand over the last six months to see if demand is dropping off.  This is to prevent suggesting a LRP safety stock on an item whose demand is dropping sharply, in order to prevent ending up overstocked due to a large SS on a dying or declining item.  Both independent and dependent history is examined.

Use a min of typical order quantity for LRP SS - Takes minimum order quantity from historical sales orders to use for the safety stock value

 

Sporadic Safety Stock Options

Filter Outliers - This sets whether or not to pre-apply a 3-standard-deviation filter to the available data points before the distribution is generated.  This will knock the peaks off any VERY large sales that might be unusually large numbers.  The result will generally be a smaller calculated sporadic safety stock.  This option is a good idea to keep on.

Alpha - Sets the recency weighting on the available data points.  The higher you set this value, the more that more recent values are weighted in the distribution generation.  An alpha of 0 provides no special weight to any more recent data points.

 

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