Safety Stock Management for Dynamics 365 BC From Netstock Part 2

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Safety stock is the extra product businesses keep on hand to avoid running out of vital inventory at critical times. The additional stock is used as a buffer to mitigate risks like supplier delays, sudden increases in consumer demand, or inaccurate inventory forecasting. While extremely useful, safety stock can tie up resources, so it's essential to get it right.

Part 1 of this post discussed the importance of safety stock and why your business needs inventory management software for Dynamics 365 BC. In Part 2, we'll discuss:

  • What inputs should you consider when selecting inventory levels?
  • Your inventory policy
  • What factors should you consider when before stocking up?

We'll also mention how the Netstock app automatically calculates the optimal inventory.

Inputs to Consider When Calculating Your Safety Stock Levels

If your inventory is extensive and spread across multiple locations, using a uniform formula to calculate optimal stock could still result in some items stocking out and some overstocked. So, how can you arrive at the optimal levels for each item?

Critical inputs to the stock calculation include:

Forecasting Safety Stock with Dynamics 365: 

Your sales team provides market data from your top customers. The more you under-forecast, the more buffer stock you may need.

Replenishment Cycle:

When do you restock? The shorter the cycle, the more items you may need on hand (frequent, small deliveries are riskier).

Lead time:

Lead time is the time between ordering and delivering items to your warehouse. The longer the lead time, the more safety stock you may need.

Forecast risk: 

Your forecast won't always be 100% accurate; you'll need safety stock to buffer for those inaccuracies. 

Supply risk:

Your suppliers are not always reliable. Late deliveries will mean you need safety stock if you are to deliver to your customers as promised.

Your Inventory Policy and Safety Stock

Your inventory policy is a framework for effectively balancing your working capital with your desired customer service level, known as your target fill rate. When setting your inventory policy, you must factor in the supply and demand risks and safety stock levels for each stock item.

Investing your money in the correct items rather than those less popular or saleable will save money and provide your customers with faster fulfilment.

Your service level will be more secure if you carry more safety stock, requiring more cash tied up in your warehouse. The less money you invest in safety stock, the better your cash flow, but your service levels may suffer.

To-Dos When Calculating Safety Stock

Classify your inventory.  

You may have thousands of SKUs in your warehouse, but not all items will be in the same demand. Some items play a more significant role in your business than others. When you classify your inventory, you'll identify obsolete, non-stocked, and actively stocked items.

Classifying your stocked items allows you to prioritize your resources on your most important items. Classify items according to relevance and sales turnover using a classification matrix. Knowing which items are high-value, fast-movers, you'll know which items require safety stock. You may need a higher safety stock level if you have unpredictable demand.

Analyze your suppliers' delivery history.

Review how often your suppliers deliver orders in full or only partially. Note the items expedited as special orders or those with unexpected delays.

Have accurate sales and forecast history.

Analyze your sales history against your previous forecasts to determine your forecast accuracy. Consider the stock item's risk profile and the forecast accuracy to determine the safety stock you'll need for a buffer.

Review your target fill rate.

Your fill rate is the percentage of customer orders you can fill with your current stock on hand without back-ordering or losing sales. To buffer against all potential uncertainties, you would need infinite money and space. When calculating your safety stock level, a fixed quantity may result in over or under-stocks. Good inventory planning requires the ability to apply dynamic values.

Continually review your safety stock levels because your risks may change. Forecasts, supplier risk, and business objectives are subject to change.

The Impact of Having Too Much Safety Stock

If you overorder, you can end up with excess items in your warehouse, which increases your overall inventory costs. Resources for storing excess stock can include additional storage space, insurance, labor, admin, and potential product loss due to theft or damage.

Optimal Planning Requires the Best Inventory Management Tools 

As the supply chain continues to experience uncertainty, using spreadsheets for your planning and replenishment requirements will put your business at risk.

Investing in a demand planning solution like Netstock Safety Stock Management for Dynamics 365 will give you the visibility to create accurate forecasts, order recommendations, and inventory requirements. Your stock buffer is calculated based on each item's classification. If your supplier becomes unreliable, the supply risk will escalate, and Netstock will automatically increase the optimal level for that item.

Let Netstock accurately measure the optimal safety stock with Dynamics 365

Download The Ultimate Guide to Inventory Management.

Enhance your Microsoft Dynamics ERP

Unlock your inventory data with Netstock and Microsoft Dynamics ERP. Netstock extracts and analyzes the data in your Microsoft Dynamics ERP, enabling you to place orders faster, reduce excess stock, and minimize stock-outs.

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Contact our inventory experts at Netstock.

By Netstock, netstock.com

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