Good Essay On Safety Stock Level
Safety stock= (standard deviation)*(service factor) *(lead time factor)
Safety stock = 7*1.28*60
In the above calculation, I have used statistical model of Standard Deviation of a Normal Distribution of numbers to determine the probability. In my calculations, I have used a simple formula which involves the multiplication of standard deviation to service factor and then lead time factor. Service factor is used as a multiplier with the Standard Deviation to calculate the specific quantity to meet the specified service level. To arrive at my service factor I have used excel function NORMSINV to convert the service level into the service factor. After doing so I 90 percent of service level was equal to 1.28 service factor (Rooney, 2001). Quantitative analysis involves measurements, performance evaluation of the financial instrument. It is usually done to ensure that the investment is well managed, and resources are used appropriately. The above calculations can be used to determine the demand rate in the organization hence guidance in the production department. In the supply of goods and service and an organization quantitative analysis depends a lot on the safety stock statistical formula to determine the level of supply they should be delivering. In the estimation or forecasting demand and supply an organization can know how resources will be used effectively more so financial resources. The organization will be able to know how many employees to recruit and to which section of production (Bangerty, 2001).
Using the statistical model of calculating safety stock quantity or amount an organization can determine what ways to improve on its marketing strategy in the case the demand target is not achieved. In the production sector, new machinery should be put in place to upsurge competence and effectiveness in the processing of goods for the consumers. The organization should always focus on optimization of profit for it to survive in the world market. Conclusively each and every organization, company or factory to consider the establishment of safety stock management skills for them to optimize their profits. Strict measures should be put in place to ensure there is not misappropriation of organization funds. There should be the establishment of a department that should be mandated to ensure each and every resource the company or the organization invests in is used in a correct and appropriate manner.
S.P. Meyn, 2007. Control Techniques for Complex Networks, Cambridge University Press 2007
Rooney, C. and Bangert, C ( 2001, April ). Developing the Right Approach to Requirements Planning Under ERP.
“Safety stock” Inventory Management Review. 2005 Retrieved 2013