What Is The Purpose Of Safety Stock
Safety stock is an extra quantity of a product which is stored in the warehouse to prevent an out-of-stock situation. It serves as insurance against fluctuations in demand.

What is the purpose of safety stock Mcq?

Explanation: The purpose of safety stock is to control the likelihood of a stockout due to the variability of demand during lead time.

What is the required safety stock?

What is a good safety stock level? – The optimal level depends on several factors, including inventory velocity, current and future demand, sales volume and supplier lead times. As a rule of thumb, the safety stock amount should be the amount of inventory used per day multiplied by the lead time in days.

What is the difference between safety stock and minimum stock in SAP?

Safety Stocks – it specifies quantities to satisfy enexpected high demand in coverage period where as Min. Safety stock is lowest limit of availability of safety stock needed in plant at any cost.It shows safety stock should be greater or equal to this min.

What are the two main purpose of stock control?

Theft and missing stock – When all stock is accounted for and organised with correct barcodes and in the correct bin location, it becomes a deterrent for potential theft, and it becomes harder to misplace or lose stock. Good business software will give you clear visibility of the whereabouts and status of all your products, so you’ll be able to identify different types of stock, errors or misplaced items.

  1. It’s impossible to have complete accurate stock control if you’re relying on manually updating spreadsheets because human error and long processes increase the likelihood of inaccurate information.
  2. If you’re looking to drive your business forward, manual stock control is not reliable.
  3. If you’re planning to expand your product lines you need a connected, reliable stock management system to support you and automate the processes for maximum efficiency.

The purpose of stock control is to reduce the costs of holding stock while ensuring you can meet customer demand and making sure that there’s enough material for production. Businesses should always have a ‘safe’ amount of stock so that they’re able to react and cover any unforeseen issues.

You might be interested:  What Is Health And Safety Law

What is the primary purpose of inventory?

Final Observations – At its most basic level, inventory can is the integrity of a company’s assets that are in the process of being manufactured or transformed into a finished product. The purpose of the inventory is to provide a buffer between production and sales, smoothing out the flow of goods and ensuring that products are available when customers order them.

What is the disadvantage of safety stock?

Disadvantages of safety stock – When there’s not enough customer demand, products can languish in your inventory. Sometimes, better products or technology comes along too, making your current supplies unusable. New and improved discs, adhesives, safety gear, and more are released regularly.

How do you consume safety stock in SAP?

Safety Stock Calculation in SAP Let me try and explain to you through a mix of functional procedures and how SAP calculates the Safety Stock: In normal materials management there are basically 2 basic inventory management systems, the P system and the Q system. P system is a system wherein replenishment is done keeping the quantity constant. The period becomes the variant. In other words you fix the quantity you want the stock to dip, to trigger a requirement. As soon as the stock level is reached you replenish the stock. During a lean period the time taken to reach the level will be longer and during an active period the time taken to reach that stock could drop.This normally relates with your consumption based planning. Q system is a system wherein replenishment is done keeping the period constant. The quantity becomes the variant. In other words you will check for the level of stock at fixed time intervals (daily, weekly, monthly etc.) compare it with the requirements on that day and trigger the procurement process for replenishment.This normally relates with your MRP. Now there are 4 more factors that could affect the idealistic procurement pattern: 1. Ordering Lead-time.2. Manufacuring Lead-time 3. Transporting Lead-time 4. Stock conversion Lead-time (or Quality Inspection lead time) A delay in any or all of the above can have effect on the entire replenishment process and the stock. A buffer stock must be designed to take into account the above coverage. Again the determination of your safety stock depends on the accuracy of your forecast. Higher your accuracy, lower your safety stock. This relationship between forecast accuracy and service level is denoted by factor R. This also takes into account that the customer demand cannot be always satisfied 100% of the time. Hence what we have is: R = Relationship between forecast accuracy and service level (Service Factor) W = Delivery time (in days) / Forecast Period (in days) MAD = Mean absolute deviation (parameter for forecast accuracy) Now If replenishment lead time is greater than the forecast period by factor W then: Safety Stock = R x Sq.rt. W x MAD Else Safety Stock = R x W x MAD Now in SAP If the material is produced in-house, the delivery time is: opening period + in-house production time + goods receipt processing time. It is expressed in workdays. The forecast period is taken from the material master record and is also expressed in workdays. If the material is procured externally, the delivery time is: Processing time for purchasing + planned delivery time + goods receipt processing time. It is expressed in calendar days. The forecast period is taken from the material master record and is also expressed in calendar days. As a result of this you will have observed now that the safety stock must cover both the unplanned material excess consumption, as well as the additional requirements caused by delayed deliveries. In SAP you can specify a minimum safety stock. If the result of the safety stock calulation by the system is lower than this limit, the safety stock is automatically set to this value. You enter the minimum safety stock in the material master record (MRP 2 screen). Safety Stock: In IMG -> Materials Management -> consumption Based Planning -> Master Data -> Check MRP Types (transaction code OMDQ) you use the indicator Calculate Safety Stock so that system calculates the safety stock automatically. The safety stock can be calculated automatically for materials planned with one of the consumption-based planning procedures if: 1. The service level has been maintained in the material master record.2. Historical data exists 3. The forecast has been carried out for the material. Dynamic Safety Stock: If the option Define Range of coverage profiles is chosen in IMG (Tr.Code OM1A) you can determine a safety stock level that takes into account: 1. Requirements.2. Range of coverage The limiting factors to the above are: 1. Maximum and minimum range of coverage ( defined period, that is month, week or PPC planning calendar) 2. Determination of various periods for the validity of the range of coverage. The system uses the formula: Dynamic safety stock = average daily requirements (ADR) x Range of coverage ADR = Requirements in the specific period / number of days in the total period length (defined period x standard days) Please note here that if you carry out the planning run even in the middle of the month the system will include even the requirements planned at the beginning of the month. Please also note that you can determine the range of coverage for a maximum of 3 periods.1. Range of Coverage in the First Period 2. Range of Coverage in the second period 3. Range of coverage on the rest of the horizon However you have the option of maintaining different coverage for each of these periods. Based on your customization the system determines the number of days used for calculating your average daily requirement Minimum Stock Level (mSL) = ADR x minimum range of coverage Target Stock Level (Dynamic Safety Stock this is DSL) = ADR x Target range of coverage. Maximum Stock Level (MSL) = ADR x maximum range of coverage. Having confirmed the above, I will now try and explain through an example how the system calculates the Dynamic safety stock: Presume that the system has determined the ADR as 25 Kgs for a material. You have set the following in customizing: Minimum Range of coverage = 2 days Target Range of coverage = 6 days Maximum Range of coverage = 10 days Now the System determines the following; mSL = 2*25 = 50 KGs DSL = 6*25 = 150 KGs MSL = 10*25 = 250 KGs This is what happens for various levels of stock Case 1: Stock = 45 Kgs System Activity = DSL – stock Procurement Proposal = 105 Kgs Case 2: Stock = 60 Kgs System Activity = DSL – stock Procurement Proposal = 90 Kgs Case 3: Stock = 155 Kgs System Activity = none Procurement Proposal = none Case 4: Stock = 255 Kgs System Activity = System checks whether the procurement proposal is firmed and if yes it displays an exception message. Also note that in the case of Time Phased materials planning The range of coverage is calculated differently. Get help for your SAP MM problems SAP MM Forums – Do you have a SAP MM Question? SAP Material Management Books SAP MM Books – Certification, Interview Questions and Configuration SAP Material Management Tips SAP MM Configuration Tips and Materials Management Discussion Forum Main Index SAP ERP Modules, Basis, ABAP and Other IMG Stuff All the site contents are Copyright © www.erpgreat.com and the content authors. All rights reserved. All product names are trademarks of their respective companies. The site www.erpgreat.com is in no way affiliated with SAP AG. Every effort is made to ensure the content integrity. Information used on this site is at your own risk. The content on this site may not be reproduced or redistributed without the express written permission of www.erpgreat.com or the content authors.
You might be interested:  What Is Meant By Lti In Safety

Why is physical inventory important in SAP?

The Cycle Counting Method of Physical Inventory allows fast-moving items to be counted more frequently than slow-moving items. In MM – Inventory Sampling, randomly selected stocks of the company are physically counted on the balance sheet key date.

What is the purpose of physical inventory in SAP MM?

SAP MM – Physical Inventory Process Physical inventory is a process of determining that the inventory quantities are exact, or if there are differences in quantity mentioned physically present and that mentioned in the SAP system.