Скачать или смотреть How to Calculate Safety Stock, Buffer Stock and Cycle Stock | Definition and Example

Calculating the appropriate levels of cycle stock, safety stock, and buffer stock is essential for ensuring business continuity without overspending.

In this video, I'll provide you with accurate definitions, formulas, and a practical example of how to calculate these stock levels.



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✏️ Here is the transcript of the video

▶ How to Calculate Safety Stock, Buffer Stock, and Cycle Stock in a Warehouse

First of all, it's important to highlight that this formula and these definitions are applicable to any type of warehouse, whether it be a finished goods warehouse, an inter-operational warehouse, or a raw materials warehouse.




▶ Fundamental Definitions:

Cycle Stock: This is the amount of material needed to meet normal demand. This stock is determined by the average demand and the supply lead time.

Buffer Stock: This is the amount of material needed to compensate for demand fluctuations caused by the customer. Buffer stock is influenced by the volatility of demand and errors in forecasting and MRP.

Safety Stock: This is the amount of material needed to address losses within the process. Safety stock is influenced by machine downtime and quality losses.



▶ Stock Formulas

Now, let's move on to the calculation formulas:

Cycle Stock = Average Daily Demand * Supply Lead Time (expressed in days).

Buffer Stock = Demand Variation (expressed as a percentage of the cycle stock).

Safety Stock = Safety Factor (expressed as a percentage of the sum of cycle stock and buffer stock).



▶ Practical Example:

Let's consider a finished goods warehouse, such as cameras. Suppose the daily demand is 100 cameras and the replenishment time is 5 days. Therefore, the cycle stock will be 500 cameras (100 * 5).

If the annual demand variation is 20%, the buffer stock will be 20% of 500, i.e., 100 cameras.

For the safety stock, assuming a percentage of 20% based on maintenance and quality data, we will have 20% of the sum of cycle stock and buffer stock, which is 120 cameras (20% of 600).

In summary, to ensure 100% on-time delivery, the finished goods warehouse will be composed of:

500 cameras of cycle stock,
100 cameras of buffer stock,
120 cameras of safety stock,
for a total of 720 cameras.



▶ Conclusions

The calculation of cycle stock, buffer stock, and safety stock is a dynamic process that requires periodic reviews.

Although the calculations are simple, constant management of data and stock levels is crucial.

Moreover, it's clear that improvements in maintenance, quality, and reducing lead time can reduce inventory without compromising customer satisfaction.

Thank you for following the video. Useful links for further information can be found in the description.



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