Some easy, but not so obvious, ways to reduce your safety stock

5th February 2018

Martec has carried out many projects for retailers where the goal has been to reduce safety stock.  Normally we’ve reduced store / SKU forecast error by at least 10%. So don’t feel bad, everyone has way too much stock in the wrong lines! Here are some of the areas to look at first.

  1. Measure your cycle time and estimate the stock you need to cover sales in the cycle time.  The total stock minus the cycle time stock is the safety stock, which is there to protect against forecast error.  Look at ways to reduce forecast error.   For slow moving lines forecast sales for all the stores served by the warehouse and buy in to support this forecast. The aggregated number will reduce your error rates.  Then either allocate down to store or run Min/Max for store replenishment on slow moving lines, or SOGO (sell one get one) on very slow lines.  Measure the error based on a rolling weeks cover total rather than week by week.  If you need 8 weeks cover in a store measure the forecast error over the 8 weeks and again it will be smaller due to plus  and minus errors cancelling out to some degree.
  2. To reduce cycle time stocks look at the time taken to do each step in the cycle and see how the time can be shortened.
  3. If you distribute in packs, can you do singles?  This is especially worthwhile for slow moving lines.
  4. Review your pack rounding rules.  0.5 of a pack round up is a huge mistake.  We suggest A or fast-moving lines are rounded up on 0.5 of a pack, B or medium selling lines are rounded up on 0.6, C items on 0.7 and D items you make as many as possible online only.  However, do check affinities first so you don’t reduce sales of A and B lines which have an affinity with the D lines.
  5. If Minimum Presentation is a big part of safety stock can you display it differently or more creatively to use less actual stock? 

Have you tried this approach?  What works best for you?

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1 Comment

Brian Hume - Thursday 24th May 2018

The safety stock also protects against variability in the supplier lead time and some systems build this into their safety stock calculation.
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