Managing safety stock
Increasing safety stock can look like a straight-forward solution to mitigate risk. However, it can become significantly expensive and ineffective, especially when disruptions are longer than anticipated. To find the right safety stock balance, implement an adaptive inventory strategy. Adaptive inventory strategy pairs your risk profile based on severity and occurrence with ongoing detection of potential threats to supply continuity. This informs the realignment or adjustment of your existing inventory strategy. In the case of perishable goods inventory, additional variables come into play, making the detection and severity ranking even more complex.
Furthermore, estimating the right quantities of safety stock can be challenging. A special case of Monte Carlo simulations, i.e., Discrete Event Simulations (DES) can be used to overcome this challenge. DES has the capability to model uncertainty and variables inherent in process times, and perform ‘what-if’ analysis.