Safety stock is the number of products a business keeps on hand as a buffer to prevent stockouts. It’s like how your body keeps a little bit of fat on hand to burn off when food becomes scarce. A business, just like a body, shouldn’t accumulate too much fat because that can lead to all sorts of health problems. You need to find a healthy balance between gorging and starving.
How much should your safety stock be? That depends on many factors, including how long it takes to receive products after they’re ordered, the average number of sales in a given time period, standard deviation and a bunch of other boring factors that would take forever to explore. For an in-depth discussion of calculating your safety stock, read the article “Optimizing Safety Stock.”
The problem is it can take quite a while to calculate the safety stock number for every product you sell. To make this task easier, you can use inventory management software to automatically calculate every safety stock number.
Better Safe than Sorry
It’s better to keep your money safe in your savings account than to be sorry you spent it on inventory that just sits in your warehouse. Of course, it’s also important not to displease customers by running out of products when they want them. That’s why it’s so important to get your safety stock right.
What comes first for a company – profit or customer service? By optimizing your safety stock, you don’t have to choose between the two. You can improve your profit margin and customer service at the same time. By keeping just enough products on hand to cushion the blow of sudden increases in demand, you protect your bottom line while also satisfying customers.
Safety stock is a moving target, so you can’t just calculate it once and forget about it. It needs to be constantly refined so it can help you adapt to changing circumstances. Since you don’t have all the time in the world to focus on this one aspect of your business, you should use Fishbowl Manufacturing or Fishbowl Warehouse to handle this challenge. They can calculate your safety stock, reorder point and more by analyzing all your inventory data.
You can keep your business fit and healthy by maintaining the right safety stock!