To understand how, and why a flow orientated pull replenishment methodology such as Demand Driven MRP is so much more effective, see Supply Chain Planning & Replenishment - Keep 'em Separate! (4) Needless to say, the use of a buffer (no matter how it’s calculated) in the form of a safety stock as used in traditional forecast driven ERP/MRP/APS actually generates performance destroying supply chain variability. In general, and as can be seen from the above, the King Equation overstates the correct calculation of the buffer. King Eqn = z x SD of Daily Demand x SQRT of replenishment cycleĬycle Safety Stock when replenishment cycle is 4….Ĭycle Safety Stock when replenishment cycle is 9…. The below table shows these and all other such possibilities:Ĭycle Service Target – F(1.64) = 95%, SD of daily demand = 1.76, SD of 4d demand = 2.78, SD of 9d demand = 3.15Ĭorrect Cycle Safety Stock = z x SD of Demand over replenishment cycle one stock-out) is actually just c39% (3) and the probability of staying in stock for 9 or less of those cycles (ie. Users of the cycle service calculation may also be surprised to learn that planning on, say, 90% cycle service actually means, if they replenish ten times in a year, that the probability of staying in stock for exactly 9 of those 10 cycles (ie. The above commonly used calculation, sometimes known as the King Equation (1), delivers a level of ‘cycle service’, which is the probability of staying in stock over the replenishment cycle (2). It says nothing about how many days you’ll be in stock over, say, a year nor the degree to which you’ll be backordered if you do go out of stock – it could be momentary for just a few pieces or something far more significant. Safety stock quantity for 95% service level = F(z) x standard deviation of daily demand x SQRT of replenishment cycle (replenishment cycle = planned order interval, if there is one, plus lead-time) On 95% of the days that we are open we will be able to meet all our customers’ requests?Įach of these is a reasonable, though different, description of 95% service level and that there is a degree of confusion between ends and means is illustrated by the fact that the most commonly used statistical formula for sizing safety stock to achieve a specific service level % doesn’t match any of them…………….We will fully meet 95% of our customers’ requests?.We will provide, on average, 95% of the quantity that our customers request?.finished goods to customers in MTS, raw materials to the factory in ATO) also attempt to measure the service level provided but there is often lack of clarity re what, say 95%, actually means. Nearly all companies that plan to have materials available ‘ex-stock’ (eg. Weirdly, why you might sometimes need a negative safety stock to achieve a given level of service.Why, if you're using a statistical safety stock, it probably doesn’t deliver anything like the service level % you expect.
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