Safety stock determination of uncertain demand and mutually dependent variables




Safety stock is that point, where the user finds a comfort zone between overstock and understock situation.  It is is defined as the buffer inventory have to be kept to deal with differences between supply and demand. There are different variables to be considered while determining safety stock. In this writing there is an effort to establish a model that include direct and indirect cost related to inventory. The inclusion of Ordering cost, holding cost, Product price, Time, Demand, Demand Variation, Lead time, Mean lead time, Errors in Forecasting, Deviation of lead time etc. are used in this model. This model works economic order quantity, regression, and forecasting error calculation to estimate safety stock while reducing human judgment error in the calculation.


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