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Mitigating Supply Chain Risk with Safety Stock

Critical spare management
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In recent years, medical, geopolitical, and economic developments demonstrate the importance of mitigating supply chain risk and how important safety stock truly is. Maintaining a sufficient safety stock of maintenance, repair, and operations (MRO) supplies for your business offers an insurance policy and should be considered a critical component of any effective supply chain management scheme.

Supply chain safety stock, inventory that is held in reserve to protect against unexpected delays or disruptions in the supply chain, ensures businesses they will have the resources they need to keep their operations running smoothly, even if a pandemic, war, or global recession causes delays in the delivery of the inputs they require.

Built from SDI’s decades of experience as a leading supply-chain-as-a-service provider, we have developed a set of best practices for safety inventory management in supply chain operations:

1. Determine Safety Stock Baselines – Use this formula to calculate a starting point for the amount of safety inventory to build into your supply chain operations:

Maximum daily use (or production capacity) X Maximum delivery time
Average daily use X Average delivery time

This will ensure you will be able to withstand all but the most devastating supply chain disruptions before suffering a stockout while keeping carrying costs and inventory levels manageable.

2. Adjust for Criticality – You should give the most critical MRO supplies – those that would bring production of your most profitable products to a screeching halt – significantly more cushion than the raw number you arrive at in step 1. On the other hand, you can afford to sacrifice service levels for parts that deliver only marginal return on investment in order to save money and warehouse space. Consider adjusting the reorder point for supply chain safety stock based on demand variability and seasonality, as well.

3. Commit to Scheduled Maintenance – Planned and preventative maintenance not only improves productivity by cutting out excessive unscheduled downtime, but it also avoids dipping into supply chain safety inventory. When you know when and what parts will be replaced, you can order them in advance, so they are there ahead of the scheduled maintenance session. Unplanned maintenance and emergency repairs often force businesses to press their safety stock into action, leaving the cupboard bare and the company vulnerable until it can be replenished.

4. Automate – Setting up robotic processes to oversee supply chain activities as a whole generates efficiencies overall and can deliver extraordinary results for safety stock management in particular. Automated reordering when supplies dwindle to a predetermined level ensures delivery before you will have to tap into your reserves. For MRO supplies whose demand is difficult to predict, it may be preferrable to implement critical inventory alerts to send messages to decision makers when stocks run low. They can then make the final decision of if, when, and how much to order.

5. Lean on Your Suppliers – Creating strong relationships with diverse suppliers and negotiating favorable purchase terms may alleviate the need to keep or pay for large safety stock reservoirs on site. For instance, a vendor may be willing to hold important parts in their own facilities. They could offer volume discounts to offset the carrying costs of inventory you keep in reserve. And they can help you make informed decisions such as whether it would be less costly to pay expedited shipping costs rather than holding large stores of MRO supplies.

SDI’s supply chain safety stock management services, part of our critical-stock-as-a-service offering, helps manufacturing businesses streamline production, reduce costly rush orders, maximize revenues, and leverage supplier rapport. We’ll forecast your annual demand and implement workflows that ensure you’ll keep the optimal levels of safety stock for thousands of MRO materials while eliminating waste, saving warehouse space, and minimize the risk of stock becoming obsolete. Our experts can help businesses to assess their current MRO safety stock levels, identify opportunities for improvement, and implement solutions that meet their specific needs. We can also help businesses with other aspects of their supply chain, such as demand forecasting, inventory management, and supplier relationship management. By working with SDI, businesses can get a comprehensive view of their supply chain and develop solutions that optimize their performance. Contact us to learn more.

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