6 Best Safety Stock Formulas: Calculation & Examples in Excel (Full TUTORIAL)

Рет қаралды 87,284

Күн бұрын

Download the EXCEL Safety Stock Calculator: abcsupplychain.com/download-s...
Join my next Inventory Management WORKSHOP (free): abcsupplychain.com/inventory-...
In this world of uncertainty, it feels good to have more safety stock:
-Unpredictable demand 📊 🧻
-Pandemic 😷
-Inflation 💰
-Suppliers delays 🏭
-Events like the Suez Canal block ⛴
-Transport crisis 🚚
-Global shortages 📱
-Geopolitical tension 🌍
However, we cannot have infinite stock to cover infinite issues.
Most companies tend to increase manually their safety stocks before realizing that they don't have any cash flow left...
Then they reduce their stocks too much and face dramatic shortages 🤯
In addition, maintaining high safety stock is a trick to hide the root causes of our problems:
-Poor forecast accuracy 📈
-Poor data accuracy 🧑‍💻
-Manual processes 🥵
-Outdated IT systems (ERP, WMS, TMS ...) 💾
-Lack of visibility 🧐
-Lack of communication with suppliers 🤺
-Lack of skills & training 🧑‍🏫
In this new video step-by-step tutorial, I explain :
-The 6 FORMULAS to calculate safety stock in EXCEL
-The “old school” method from my grandpa 👴
-The one I recommend for you today
-How to combine EOQ with Safety Stock
-How to calculate the Re-Order-Point
-The limitations of the Normal distribution method
-The Future of safety stock (new methods)
-Examples in EXCEL that you can download below the video
-The action plan to start optimizing your inventory TODAY 🚀
I try to keep it simple ;-)
Let me know in the comments, what your favorite method is and how you face uncertainty 😁
Enjoy my Excel !
Edouard
▬▬▬▬▬▬▬▬▬▬▬ CHAPTERS ▬▬▬▬▬▬▬▬▬▬▬▬
Safety Stock Calculation in Excel:
00:00 Safety Stock Introduction
00:44 Safety Stock Definition
01:20 Demand Uncertainty
02:12 Lead Time Uncertainty
04:11 Economic Order Quantity (EOQ)
04:49 Reorder Point
05:30 Safety Stock Goals
07:06 Basic Safety Stock formula
08:47 Average - Max formula
12:12 Normal Distribution
14:22 Safety Stock Calculation Method 3 (demand uncertainty)
16:06 Safety Stock Calculation Method 4 (lead time uncertainty)
17:16 Safety Stock Calculation Method 5 (lead time & demand uncertainty)
18:31 Safety Stock Calculation Method 6 (lead time & demand are dependent)
19:19 Normal Distribution limits
20:40 Tip: ABC XYZ Classification
21:15 Other Safety Stock methods
22:12 How to choose the right method?
23:20 Safety Stock: Action Plan
MY BLOG: abcsupplychain.com
#supplychain #inventorymanagement #safetystock

Пікірлер: 106

@milenaszporek2792 Жыл бұрын

Brilliant tutorials. Congrats on the content, very useful and very well explained.

@ahmedkhaled-sx2yr 8 ай бұрын

Brilliant tutorials. Congrats on the content, very useful and very valuable

@musolihahmad5805 9 ай бұрын

Hi Eduardo, thanks a lot for your video. Amazing & make me learn safety stock level in simple way. Thanks

@ritasilaban7049 6 ай бұрын

Hi Eduardo, thank you so much for the great knowledge

@ianslingsby3415 10 ай бұрын

Hi Eduardo great stuff loved your presentation / tutorial.

@albinaagametova5289 2 жыл бұрын

Thank you, really great! short, informative and precise as always.

@abcsc 2 жыл бұрын

Thank you very much for your feedback Albina 🙌 I try to keep it simple while sharing my experience ;)

@69akunh Жыл бұрын

Great video, so professional!

@osamaali3210 Жыл бұрын

great work bro !! nicely done

@user-me3uy7im8k 6 ай бұрын

Thanks for the video, very helpful

@khanhhoanguyen4116 Жыл бұрын

It’s great, thank you so much!

@mukeshm.826 Жыл бұрын

very useful & explained well ... Learning

@madinat.3863 Жыл бұрын

What a fantastic tutorial! Thank you so much! What if demand per day is not quite stable (internal equipment ordering), so we review stock based every 3rd week. Should i still use AVG daily demand in the method3 or it can be safely replaced by an AVG 3-week demand? I appreciate your advice!

@babarqureshi5043 2 жыл бұрын

Thanks for sharing comprehensive video.

@abcsc 2 жыл бұрын

My pleasure!

@angelcrmmlozanoiturria3975 Жыл бұрын

Absolutely great! Right to the point.

@abcsc Жыл бұрын

Great to hear!

@souravdasgupta4895 2 жыл бұрын

Boss thank you. This is bestest video I have ever gone through. And it's practical. Thanks a ton as I have utilised this method and got the results that I required.

@abcsc Жыл бұрын

I am gald it helped Sourav, thank you very much for your feedback!

@milchsauger Жыл бұрын

Hi Eduardo, thanks for this amazing video, I learnt so much! May I know what lead time is this related to? Is it lead time of the materials from suppliers or lead time of the production of finished goods?

@nourajamal8166 Жыл бұрын

Thank You so much!

@obedass 2 жыл бұрын

As Usual very interesting and informative videos Keep it up Eduardo. Thanks

@abcsc 2 жыл бұрын

Many thanks! 🙏

@gopalverma6705 11 ай бұрын

Very nice tutorial buddy

@chriskudrle3216 2 жыл бұрын

I love your scm videos!

@abcsc Жыл бұрын

Glad you liked them!

@trixiesukardi8351 Жыл бұрын

Brilliant information. Thankyou for your videos, i've been very helpful with this video. But, i really wanna ask where can i read the jurnal or books that showed and explain estimating safety stock with other safety stock methods such as binomial dist, etc? Thankyou

@anaskhawli90ak 2 ай бұрын

great videos , very interesting

@ernstelliot2576 Жыл бұрын

Merci Beaucoup pour vos vidéos les concepts sont plus clairs pour moi. Merci !

@abcsc Жыл бұрын

Avec plaisir Elliot!

@BumeStik Жыл бұрын

Great content. Good work!

@abcsc Жыл бұрын

Thank you!

@jiltkenzy41 2 жыл бұрын

Good education video. Its help me a lot

@abcsc Жыл бұрын

Glad it helped!

@juliasweet6987 4 ай бұрын

Cool, thank you

@ElaphAlhadi 19 күн бұрын

Thank you sir for your amazing video, it's so helpful and well-explained! My question is: The factory I work at uses a weekly production plan, so can I use the unit 'sales/month' unit? if not, then how can I calculate safety stock for sales/week unit? thank you

@arnouchmanouch8943 2 жыл бұрын

I have an interview tomorrow for a new job and your videos are on point :)

@abcsc 2 жыл бұрын

Good Timing!

@GeorgeAJululian Жыл бұрын

Great video very helpful thank you

@abcsc Жыл бұрын

Very welcome!

@abcsc Жыл бұрын

Hi, if you know your safety stock levels for your end products, then you can deduct the safety stock of your raw materials through Bill of Materials or something similar

@bitmiro4624 Жыл бұрын

Very nice video but I have one question. If you have an online shop with hundreds of SKU's how it can be possible to fill for each one the sales/month and lead time in order to use the Normal Distribution Method? I mean it is possible but it will take months.

@AhmedAdel-uc4pf 2 жыл бұрын

wonderful

@abcsc Жыл бұрын

Thank you! Cheers!

@Laarbi352 7 ай бұрын

Hello thanks for video. Question: the safety stock should be on top of the average consumption correct? Meaniny if we place an order the order quantity should be average consumption + safety stock ? Thanks😊

@mayanmay7505 Жыл бұрын

Very informative. I plan to get formal education for managing inventory

@abcsc Жыл бұрын

Great initiative!

@user-wh4ke3rd5u Жыл бұрын

@@abcsc I have related material, can you explain them in your channel i will send them by email. Please send me your email sir.

@danielbreak6143 Жыл бұрын

Great video I was looking for a more robust calculation. Question: What happens if my SS + EOQ is less than my ROP?

@abcsc Жыл бұрын

Thank you Daniel. Great question. Then you order more frequently the EOQ, you don't wait for your stock to reach the SS level. If you already reached the SS level or you have a stockout, You need to make one big order to reach again the ROP, and then you can order the EOQ frequently. I talk about those subjects in my Inventory Management course: abcsupplychain.com/inventory-management-course/

@dafernandez80 2 жыл бұрын

great content. What about skewed right distributions? is there a formula or an approach for SS? thanks

@abcsc 2 жыл бұрын

Hi Daniel, glad you liked it! If you're good at statistics, you can try gamma distributions for that 😉

@jclagoss Жыл бұрын

Great videos! Question, for the normal distribution method you explained it does not work with very low demand. How much is very low demand?

@abcsc Жыл бұрын

Hi Jose, I think you can't use this method when your demand is getting a more intermittent pattern, with long periods of time of 0 quantities. It can happen with "low demand" profiles (not only) but of course everything is relative

@mohammedal-harbi5022 2 жыл бұрын

Great job man! simple and clear. just a question, what if for example I have historical sales data for 5 years (20 Quarters) (I use Quarters) , can I calculate my safety stock based on it? Or it has to be one year ?

@abcsc 2 жыл бұрын

Thank you Mohammed! Of course, 5 years of historical data is good enough. Calculate your safety stock as shown in the video, with the average daily sales using the two most recent quarters.

@user-mc2hu8oq6m Жыл бұрын

which is the reason to apply the sqrt in the lead time ? (for method 3)

@t.munhochir Жыл бұрын

Great video. Thank you from Mongolia :) I have one question by saying "low volumes" and "high volumes" when talking about normal distribution. What is the demand quantity range for low volumes?

@abcsc Жыл бұрын

Hi Munkh-Ochir, I would say that when your demand is getting a more intermittent pattern, with long periods of time of 0 quantities. It can happen with "low demand" profiles but of course everything is relative

@dheeean 11 ай бұрын

Dear Mr Eduard thanks for the tutorials, but i rlly wanna ask, on ur example u hv 10delivery and im confuse to apply that on my data. so what if i just have data like, actual sales/month and 120days LT (4month). how can i calculate that based on ur excel (normal distribution method sheet)? please help me, thanks

@cetcha100 2 жыл бұрын

Wonderful content! A question: how is the coeff service calculated? I added the NORMSINV formula to my table but got an error. Is this specific to each item or a general table? Thanks in advance.

@abcsc Жыл бұрын

It is calculated with the service level you choose, as shown in the file. You can not choose a service level higher than 100% otherwise you will get an error.

@user-vs5uy3mq8f Жыл бұрын

thank you for very helpful lecture. I would like to know how can I use demand forecast accuracy instead of deviation

@abcsc Жыл бұрын

Yes it is even better!

@abcsc Жыл бұрын

I am very glad you enjoyed it!

@alainmore5084 2 жыл бұрын

Thanks for the great video! Question, at the end you say that if we don't have data on lead time, we should use method 3... but on method 3 you use average lead time... what value should we use there if we have no lead time data?

@abcsc Жыл бұрын

Hi Alain. It is impossible to calculate the safety stock without lead time. Just ask your supplier what the lead time is ;). I was talking about historical data of lead time, if you don't have it then you cannot estimate the lead time uncertainty, so you can only use method 3 (uncertainty only about demand).

@AyaAhmed-kf5sr 4 ай бұрын

Hello Eduardo, thank you so much for this amazing video. Could you please explain why the calculations in methods 3,4,5 and 6 for the reorder point is calculated in days, while the safety stock is calculated in month?

@abcsc 4 ай бұрын

Hi Aya, you're welcome! Reorder Point is not a time value. It is the quantity limit that triggers an order. In my example, Reorder Point is 1345 pcs for method 3

@fasihhaider7136 6 ай бұрын

How did you find the lead time standard deviation in method 4 ?

@npragasam1205 2 жыл бұрын

Thank you for sharing your knowledge, please continue your sharing, I´m trying to download the excel file but unable to receive it in the mail.

@abcsc 2 жыл бұрын

Thank you for your feedback! You can send a mail to contact@abcsupplychain.com

@TomasHernandez-en6dt 3 ай бұрын

Thank you so much for your video Eduardo, very impressive and easy to understand. I am familiar with six sigma and normal distribution, so this is an excellent example of its application in inventory control. Just one comment, considering your example, could you kindly explain why is the reorder point so big (1,345)? Should it be a complement for the annual (12,000) or monthly demands (1,000) or the EOQ value? Thanks for your great work!

@abcsc 2 ай бұрын

Hi Tomas, thank you very much for your positive feedback. The Reorder point is "big" because the lead time is "big" too. You need to cover the average demand, which is 1000/month. The lead time is 35 days or 1.15 months. 1000*1.15=1,150. Which is the minimum value you need without safety stock. With safety stock, it is 1,345

@sabahanpeople Жыл бұрын

Thank you for sharing. By the way how do you determine Safety Day?

@abcsc Жыл бұрын

Arbitrarily ;)

@madhawakarunanayake 8 ай бұрын

Hi, brilliant tutorial. Unfortunately I didn't receive the download link to my email

@jeffnewton7141 Жыл бұрын

? - what if you have a forecast that is ~70% accurate form your sales team and they run promotions that create this volatility and your historical demand data is impacted by stock outs, reducing sales. Would you take your historical sales plus the cases cut to provide a more accurate sales # for the historical data? also - factoring in that with these promotions, but forecast on an item might swing from 4000 units sold to 1000 sold month to month but the forecast was 3000 and 2000 respective?

@KiyoshiNagata-rd6hv Ай бұрын

I love the Method 3, but i have a question about a HIGH Level of Demand Standard Deviation Or when my consume "Sales" have some period without it cause of some factors like Stock Break, change of another product, Etc

@abcsc 20 күн бұрын

Thank you for the feedback. If you have high level of demand standard deviation, then the formula remains the same, you will just have higher safety stock. If you have stockouts as you say, you may want to clean your past sales (get rid of the 0, =stockout correction) before calculating your safety stock, to capture unconstrained demand

@gar7519 10 ай бұрын

Please, i need you to reply to this asap, im about to do something important with your help tomorrow, So on 15:25, why do you use sales datas on demand standard deviation, arent they different? If thats not okay to consider that as a same, is the formula for method number 5 will be different? Or we can still use it cause its okay to cosider that as the same for safety stock formula

@manishfartyal9506 9 ай бұрын

Hi if demand is not normal how to calculate SS?

@SuperNanji 2 жыл бұрын

How and which method should I use for long list of Items and I can apply the formula in tabular format to all the items on the list (600 Items)

@abcsc 2 жыл бұрын

Hi! You can pick the formula you want, knowing the pros and cons of each one. I advocate for 3 and 5

@hainguyenthanh9274 Жыл бұрын

Thank you, its great video. I would like to ask more details about Method 5 and 6. In method 5, what is the meaning of sqrt after Z score? Why it need to be sqrt of (L x Variance 1 + Mean × Variance) but not L × Std Dev 1 + Mean x Std Dev 2? Thank in advance, Hai

@abcsc Жыл бұрын

Hi Hai, thank you for your feedback! About the calculation details, you can find all the details here: abcsupplychain.com/safety-stock-formula-calculation/

@abcsc Жыл бұрын

Of Course John, all our course here: abcsupplychain.com/courses-supply-chain-logistics/

@johnkaranu6842 Жыл бұрын

I would like to be mentored and trained in Inventory analysis using excel using your platform. kindly advise how I ca go about registering. Can you be my trainer? I admire your guru knowledge in Excel inventory analysis and I want to be like you. Advice

@_PutZ_ 2 жыл бұрын

Great work and thanks for sharing. Can you help me? I´m trying to download the excel file but the website didn´t send me it.

@abcsc 2 жыл бұрын

Hi Guilherme, thank you! Make sure it is not in your spam folder. If you still didn't receive it, send an email to contact@abcsupplychain.com

@_PutZ_ 2 жыл бұрын

@@abcsc got it! thank.

@rajapandi6336 Жыл бұрын

Hi.. How to arrive safety stock for rawmaterial ? Can u plz guide me.

@abcsc Жыл бұрын

Hi Raja, if you know the SS for the end product, then you can guess the SS of your raw material using the bill of materials or something similar

@pranavprabhu8569 Жыл бұрын

Is it the production lead time in days used in your sheet

@abcsc Жыл бұрын

Hi! It is the total lead time, more about lead time here: kzfaq.info/get/bejne/aq5-fqeFtNzVh4k.html

@noahhaans2788 4 ай бұрын

Would you be able to give me the sources of the formulas chosen in this video? Or explain how you got to them. I want to use them for my graduation research in Logistics, but I need verification that the formulas are from studies.

@abcsc 4 ай бұрын

Those formulas are well known, many papers discuss them as it is a stochastic problem. I let you do your research 😉

@noahhaans2788 4 ай бұрын

@@abcsc I already found them, thank you for the response :)

@phantram8178 2 жыл бұрын

I have a quizz need help to solve: which formulas would be applied when: 1/ Production Process is Stable and 2/ Quality of material is stable

@abcsc Жыл бұрын

Not sure to understand your question, could you rephrase?

@Pauete99 Жыл бұрын

How do you know your order size?

@abcsc Жыл бұрын

You can use the EOQ: kzfaq.info/get/bejne/oaqFZs6Av9uueqs.html

@abcsc Жыл бұрын

Hi Pranav! It is the total lead time

@navneetshubham4261 Жыл бұрын

Hii Dear, Can you guide me on how to set up a multichannel infrastructure, So that I can manage all reports in real-time and also want to save data in for future prediction?? #Help

@abcsc Жыл бұрын

Maybe my Inventory Management Expert program can help: abcsupplychain.com/inventory-management-course/