Exposure Demand, Supply Variability and Service Variability Calculations

Objective

After completing this lesson, you will be able to understand variability in terms of demand, supply, and service.

Should Lead Time Impact Target Safety Stock?

The figure describes the Impact of Lead Time on Target Safety Stock.

Should lead time impact Target Safety Stock?

  • Order placed in current period 1 arrives at start of period 3
  • The next shipment does not arrive until the start of period 4
  • Period 3 is most at risk of stocking out
  • Exposure period = PBR + LT
  • Most at risk period = PBR + LT - 1

Should PBR Impact Target Safety Stock?

Impact of Exposure on Inventory Targets

Time-Varying Inventory Targets

The figure describes the Time-Varying Inventory Targets.

Time-Varying Inventory Targets

  • Safety Stock: Defined as the multiplication of a factor, corresponding to service-level target, by a forecast error and by the square root of the exposure period (lead time plus periods between replenishment).
  • Target Inventory Position: Defined as the sum of the exposure demand mean, plus safety stock. Where the exposure demand mean is equal to the multiplication between the exposure period by the mean.
  • Time-Varying Safety Stock: When the safety stock varies, overtime is equal to the multiplication factor corresponding to the service level target, multiplied by the square root of the sum of each forecast error to the second power, until the exposure period is addressed.
  • Time-Varying Inventory Position: Defined as the meet exposure forecast, plus the time-varying safety stock.

Learning

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