So What is Safety Stock?
MRP Safety Stock was forcibly grafted onto MRP due to increasing levels of variability. Safety stock is a supplementary inventory position designed to make up for misalignment between planned orders, actual demand and supply orders.
The safety stock mechanism is an inelegant and ineffective stock management tool. In many cases exacerbates the bullwhip effect by introducing additional demand signal distortion through releasing expedites to recover the projected available balance position that ultimately requires higher levels of overall supply chain inventory and expenses.
MRP was never intended to manage stock, the intent was to be the perfect make to order calculator negating the need for stock, that is why MRP always nets to zero. So safety stock was never designed to be used. When safety stock is applied, MRP will always net to the safety stock level instead of zero so MRP will never consume the associated quantities.
The Alternative Approach
On the other hand, DDMRP never nets to zero and it will always consume the safety element. DDMRP utilizes strategically positioned inventory to decouple points of supply & consumption to dampen variability whilst at the same time compressing lead times through decoupling of the supply and consumption nodes. All strategically positioned inventory is designed to be consumed.
Decoupling the generation of supply requirements from demand signals with inherent forecast errors is a must. DDMPR will ensure high levels of customer service through inventory availability; reduced inventories due to right-sizing of the right parts and the decoupling of supply lead times; and finally DDMRP will also achieve a Return on Investment deployed in working capital.
Since safety stock doesn’t decouple we characterized it as a series of fire extinguishers when companies and supply chains actually need a series of strategically placed and managed firewalls that absorb the variations and disruptions in today’s supply chains.
Stop using safety stock as a way to solve your material availability issues, Contact us today so that your company can create those firewalls and put in place a modern strategic mechanism to mitigate against issues in the supply chain.
Other DDMRP Blog Posts
For information about supply chain optimization using DDMRP and how it will reduce your business risk read the following:
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