![]() ![]() Based on past customer demand for that product and the time it typically takes to receive that inventory, the 15 units will suffice. Once the inventory for that product comes down to 15 units, it triggers a new order of 100 units. Reorder point is a predefined inventory level at which you replenish your stock.įor example, suppose there’s a product in your inventory that you order 100 units at a time. Safety stock is additional inventory you keep on hand in case of fluctuations in demand and supply. There’s an important distinction between safety stock and a reorder point. Safety stock is your protection from unforeseen circumstances. For example, microchip shortages in 2021 significantly increased the time customers had to wait for a new car, made some features unavailable, and drove prices up. The same goes in case of a supply chain issue, like a material shortage. If the lead time with your supplier is short, meaning you can get new inventory in mere days, this is a small issue.īut if the lead time is already long, that product might be out of stock for months. Let’s say one of your popular products goes out of stock and customers keep asking for it. The biggest risk of not having a safety stock is having a stockout. ![]() ![]() If you sell more of a given product than you expected, your supply chain is disrupted, or your merchandise gets damaged, safety stock allows you to keep selling that product regardless. Safety stock, also known as buffer stock, is like an emergency fund. ![]()
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