Safety stock fulfillment for items - Supply Chain Management | Dynamics 365 (2022)

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Safety stock indicates an additional quantity of an item held in the inventory in order to reduce the risk that the item will be out of stock. Safety stock is used as a buffer stock in case sales orders come in and the supplier is unable to deliver the additional items to meet the customer's requested ship date. When safety stock is used to fulfill a sales order, the safety stock will be reduced. You can use Master planning to automatically bring the inventory back to the safety level.

Set up safety stock levels for items

Safety stock is set up as part of item coverage on the Item coverage page under Released products > Plan > Coverage.

In the Minimum field, enter the safety stock level that you want to maintain for the item. The value is expressed in inventory units. If you leave the field blank, the default value is zero. This field is available when you select Period, Requirement, or Min/Max in the Coverage code list. The stock level limit applies to the available inventory, which means that reservations and markings may trigger safety stock replenishment before the physical quantity goes below the specified minimum level.

Note

You must define all other planned coverage dimensions before you can define the Minimum field. This prevents an invalid record from being used during master planning. This situation can occur if, for example, a dimension group is extended with an additional planned coverage dimension for which the minimum and maximum inventory quantities are not yet defined.

You can use minimum keys to handle seasonal fluctuations in demand. For example, you can decrease the minimum inventory level for an item in the off-season, and then gradually increase the level during the other months. You create a minimum key by going to Master planning > Setup > Coverage > Minimum/maximum keys. You specify the minimum key to adjust the safety stock level by seasonality in the Minimum key field on the Item coverage page.

Example: Minimum key

The following procedure is an example that shows how to set up a minimum key that accounts for increased seasonal demand during the spring and summer months.

  1. Go to Master planning > Setup > Coverage > Minimum/maximum keys.

  2. Select New to create a minimum/maximum key.

  3. In the Minimum or maximum key field, enter an identifier for the key. In the Name field, enter a name for the key.

  4. Set the Use the effective date option to Yes and leave the Effective date field blank to make the key valid from the first day of the current year.

    Note

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    The combination of the Use the effective date and Effective date settings defines the date that the key is valid from.

    • When the Use the effective date option is set to No, the key is valid from the current date or system date.
    • When the Use the effective date option is set to Yes, the key is valid from the date that is defined in the Effective date field.
  5. In the Periods section, create 12 lines, and set the following values for them:

    • Change – Assign each line a unique number from 1 through 12. This field indicates the incremental change in the unit of time that is defined by the Unit field.

    • Unit – Select Months for every line.

    • From date, To date, and Month – These fields are automatically set, based on the Change and Unit settings. Monthly periods start from the first day of the current year.

    • Factor – Enter the values that are described in the following table. This field defines the factor that you want to multiply the minimum inventory by.

      Line (Change)FactorResult
      1–31Minimum inventory is based on the setting for January through March on the Item coverage page.
      4–52Minimum inventory is multiplied by a factor of 2 for April through May.
      6–82.5Minimum inventory is multiplied by a factor of 2.5 for June through August.
      9–121Minimum inventory reverts to the setting for September through December on the Item coverage page.

    Your settings should now resemble the settings in the following illustration.

    Safety stock fulfillment for items - Supply Chain Management | Dynamics 365 (1)

Note

You can also use a wizard to create a minimum/maximum key. On the Minimum or maximum keys page, on the Action Pane, select Wizard to open the Minimum/Maximum Keys wizard. The wizard will guide you step by step through the process of creating and setting up the minimum/maximum key.

If the coverage code is Min/Max, you can also specify the maximum inventory quantity that you want to maintain for an item. The value is also expressed in inventory units. If the projected available inventory falls below the minimum quantity, master planning generates a planned order to fulfill all open requirements and brings the available inventory up to the specified maximum quantity. Just as when you set up the minimum inventory quantity, you must define all other planned coverage dimensions before you can set the Maximum field.

Example: Min/Max coverage code

The minimum quantity is 10, and the maximum quantity is 15. Current on-hand inventory is 4. This gives a minimum quantity requirement of 6. However, because the maximum quantity is 15, master planning generates a planned order for 11 items.

For items that follow seasonal demands, you may need to maintain different maximum levels. To do that, you need to define Maximum keys by going to Master planning > Setup > Coverage > Minimum/maximum keys. Fill in the Maximum key field on the Item coverage page. You can view the information about the safety stock levels, defined via minimum keys on the Min/Max tab, on the Item coverage page. You need to make sure that, for a certain period, the minimum and the maximum values are kept in sync.

Safety stock fulfillment

The Fulfill minimum parameter allows you to select the date or the period during which the inventory level must meet the quantity that you specified in the Minimum field. This field is available when you select Period, Requirement, or Min/Max in the Coverage code list.

If Minimum keys are used, select the Minimum periods check box to fulfill the minimum inventory level for all the periods that are set up in the minimum key. If you clear the check box, the minimum inventory is fulfilled for the current period only.

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The following scenario shows how this parameter works and what are the differences between its values.

Note

For all the illustrations in this article, the x-axis represents inventory, the y-axis represents days, the bars represent the inventory level, the arrows represent transactions, such as sales order lines, purchase order lines, or planned orders.

The Fulfill minimum parameter can have the following values:

Today's date

The specified minimum quantity is met on the date when master planning is run. The system tries to fulfill the safety stock limit as soon as possible, even though it may be unrealistic due to the lead time.

Planned order P1 is created for today's date to bring the available inventory above the safety stock level on this date. The sales order lines S1 to S3 continue to lower the inventory level. Planned orders P2 to P4 are generated by master planning so that the inventory level is brought back to the safety limit after each sales order requirement.

When the Requirement coverage code is used, multiple planned orders are created. It is always a good idea to use either Period or Min/Max coverage for items and materials in frequent demand, to bundle the replenishment. The following illustration shows an example for coverage code Period.

The following illustration shows an example for coverage code Min/Max.

Today's date + procurement time

The specified minimum quantity is met on the date when master planning is run, plus the purchase or production lead time. This time includes any safety margins. If the item carries a trade agreement, and the Find trade agreements check box is selected on the Master planning parameters page, the delivery lead time from the trade agreement is not considered. Lead times are taken from the item's coverage settings or from the item.

This fulfillment mode will create plans with less delays and fewer planned orders, regardless of the coverage group set up on the item.

The following illustration shows the outcome of the plan if the coverage code is Requirement or Period.

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The following illustration shows the outcome of the plan if the coverage code is Min/Max.

First issue

The specified minimum quantity is met on the date when the available inventory goes below the minimum level, as shown in the following illustration. Even if the available inventory is below the minimum level on the date when master planning is run, First issue will not attempt to cover it until the next requirement comes in.

The following illustration shows an example for coverage code Requirement.

The following illustration shows an example for coverage code Period.

The following illustration shows an example for coverage code Min/Max.

On the date when master planning is run, if the available inventory is already under the safety stock limit, Today's date and Today's date + procurement time will trigger the replenishment immediately. First issue will wait until there is another issue transaction, such as sales order and BOM line requirement, for the item, and then it will trigger the replenishment on the date of this transaction.

On the date when master planning is run, if the available inventory isn't under the safety stock limit, Today's date and First issue will provide exactly the same result, as shown in the following illustration.

On the date when master planning is run, if the available inventory is not under the safety stock limit, Today's date + procurement time will provide the following result, because it postpones the fulfillment until the end of the procurement lead time.

Safety stock fulfillment for items - Supply Chain Management | Dynamics 365 (12)

Coverage time fence

The specified minimum quantity is met during the period that is specified in the Coverage time fence field. This option is useful when master planning does not allow available inventory to be used for real orders, such as sales or transfers, in the attempt to maintain the safety level. However, in a future release, this mode of replenishment will no longer be needed, and this option will be deprecated.

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Plan safety stock replenishment for First Expired, First Out (FEFO) items

At any point in time, the inventory receipt with the latest expiry date will be used for safety stock to allow real demand, such as sale lines or BOM lines, to be fulfilled in the FEFO (First Expired, First Out) order.

To show how this works, consider the following scenario.

When planning is run, it will cover the first sales order from the existing on-hand inventory and an additional purchase order, for the remaining quantity.

A planned order is created to make sure that the available inventory is brought back to the safety limit.

When the second sales order is planned, the previously created planned order that covers the safety stock is used to cover this quantity. Hence, the safety stock is constantly rolling.

Finally, another planned order is created to cover the safety stock.

All the batches expire accordingly, and planned orders are created to refill the safety stock after it has expired.

How master planning handles the safety stock constraint

Safety stock is tracked in the system as a requirement type, just like sales lines or BOM requirements. You can see the safety stock requirement line on the Net requirements page if you remove the default filter on the Requirement type column.

Fulfilling the safety stock requirement transaction is deprioritized if the system determines that this causes delays in the fulfillment of real demand, such as sales lines, BOM lines, transfer requirements, or demand forecast lines. Otherwise, making sure that the available inventory is above the safety stock quantity has the same priority as any other demand types. This ensures no delays for real transactions and helps to prevent over-replenishment and early-replenishment of safety stock.

During the coverage phase of master planning, safety stock replenishment is no longer deprioritized. On-hand inventory can be used before any other demand types. During the delay calculation, new logic will be added to go over the delayed sales lines, BOM line requirements, and all the other demand types, to determine whether they could be delivered on time, provided that the safety stock is used. If the system identifies that it can minimize delays by using safety stock, then the sales lines or BOM lines will replace their initial coverage with the safety stock, and the system will trigger the replenishment for the safety stock instead.

If the plan or the item is not set up for delayed calculation, then the safety stock constraint will have the same priority as any other demand types. This means there is a reserve of on-hand and other available inventory before other demand types.

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Additional resources

  • Use the safety stock journal to update minimum coverage for items

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FAQs

What is safety stock in SCM? ›

What is safety stock in supply chain? Safety inventory is carried to satisfy demand subject to unpredictable demand fluctuations and to reduce product shortages. This type of inventory cushion is also called safety stock or buffer inventory.

How is safety stock calculated? ›

Safety stock is calculated by multiplying your desired service factor (Z score) by the standard deviation in lead time (𝜎𝑑𝐿𝑇), which is the degree and frequency by which the average lead time differs from the actual lead time.

What is safety stock journal d365? ›

Safety stock journals are used to calculate a proposed minimum quantity based on an item's historical usage, either for min/max purposes or for inventory plan purposes. Historical usage represents all issue transactions during a specified period.

How do you create safety stock? ›

To calculate safety stock, work out your average daily use for a product and multiply it by its average lead time – how long it takes, in days, to arrive once you place an order. Then subtract this number from your maximum daily use times your maximum lead time. The result is the safety stock number for that product.

What is safety stock example? ›

For example, if you sell 100 products per day you want to have five days' worth of safety stock. The calculation is 100 (products) x 5 (days worth of stock) giving you a safety stock of 500 units.

How much safety stock should you have? ›

The optimal level depends on several factors, including inventory velocity, current and future demand, sales volume and supplier lead times. As a rule of thumb, the safety stock amount should be the amount of inventory used per day multiplied by the lead time in days.

Why do we maintain safety stock? ›

The ultimate goal of safety stock is to keep your customers happy. While safety stock indisputably helps mitigate supply chain risks, it's end goal is to make sure that you don't run out of stock, so customers are satisfied with your service and keep coming back for more.

What two things drive the safety stock? ›

There are only two reasons to have safety stock: uncertainty of demand and uncertainty of supply. And the uncertainty is only important during the time periods when your supply chain has little or no flexibility to change.

How is safety stock included in a material requirements plan? ›

The purpose of the safety stock is to prevent a material shortage from occurring. In order to determine the safety stock level, you must first specify the risk of a material shortage and also the desired service level. Usually the safety stock will not be used in production.

What is Item coverage in d365? ›

Item coverage is designed for the inventory management. Master planning will create planned orders based on the set up of item coverage. The min/max quatity means the min/max stock point at inventory level.

How do you calculate stock? ›

You'll need the original purchase price and the current value of your stock in order to make the calculation. Subtract the total purchase price from the current price of the stock then divide that by the original purchase price and multiply that figure by 100. This gives you the total percentage change.

How do you calculate stock level? ›

To calculate maximum inventory levels, use the following formula: maximum inventory levels = reorder point + reorder quantity – [minimum consumption × minimum lead time].

How do you calculate safety stock in Excel? ›

By directly using the demand standard variation formula in Excel, we get a demand standard deviation of 141.4 pieces per month. The average lead time is 1.15 months. To get the safety stock quantity, we need to multiply the service factor Z by the demand standard deviation σ and the square root of the lead time L.

What is another name of safety stock? ›

Safety stock is also known as buffer stock, and it is the extra inventory kept as a failsafe against demand fluctuations and supply chain uncertainty.

What is the difference between cycle stock and safety stock? ›

What is the difference between cycle stock and safety stock? It ultimately comes down to the expected use for each type of inventory. Cycle stock are the goods allocated to meet regular customer demand over a certain amount of time. Safety stock, on the other hand, is more like backup inventory.

How do you calculate z score for safety stock? ›

Safety stock = Z-score x standard deviation of lead time x average demand. For example, if aiming for a Z-score of 1.65, with average demand constant at 20 units per month, and lead times over a six month period being 2, 1.5, 2.3, 1.9, 2.1, and 2.8 months, then Safety Stock = 1.65 x . 43 x 20 = 14.3 units.

What is minimum stock level? ›

A minimum stock level is a threshold value that indicates the level below which actual material stock items should not normally be allowed to fall. In other words, a minimum stock level is a minimum quantity of a particular item of material that must be kept at all times.

What is minimum and maximum stock level? ›

The minimum stock level of a period is high enough to cover the demands in the following periods within the minimum days' supply. The maximum stock level of a period is large enough to cover the demands in the following periods within the maximum days' supply.

How do you calculate minimum stock level? ›

Using the formula above, we can calculate your minimum inventory level like this: Minimum Inventory Level = Average Daily Demand x Average Time to Sell.

What is the difference between safety stock and minimum stock? ›

Minimum stock: this is the minimum amount of each product the warehouse must have to respond to demand. Safety stock: every installation should have safety stock (sometimes called buffer stock) in order to prevent stockouts in the event of an unexpected rise in demand.

What is the difference between safety stock and reorder point? ›

Safety stock is similar to a reorder point, but it's a surplus quantity to ensure that you don't run completely out of stock if there are delays. When deciding on a safety stock level you'll want to consider: average daily sales and the daily average that product used in work orders (if applicable).

What is danger stock? ›

Danger Level: It is the level below which stocks should not fall in any case. If danger level approaches then immediate steps should taken to replenish the stocks even if more cost is incurred in arranging the materials.

How do you calculate stock? ›

You'll need the original purchase price and the current value of your stock in order to make the calculation. Subtract the total purchase price from the current price of the stock then divide that by the original purchase price and multiply that figure by 100. This gives you the total percentage change.

How is safety stock included in a material requirements plan? ›

The purpose of the safety stock is to prevent a material shortage from occurring. In order to determine the safety stock level, you must first specify the risk of a material shortage and also the desired service level. Usually the safety stock will not be used in production.

What is the formula for calculating minimum stock level? ›

Minimum Inventory Level = Average Daily Demand x Average Time to Sell.

How would you determine the minimum stock level for an item provide 4 examples? ›

The main factors to consider when fixing the minimum stock level are:
  1. Average rate of consumption of materials.
  2. Time needed to procure fresh supplies under top priority conditions.
  3. Reorder level.
  4. Production requirements in terms of materials.
  5. Minimum quantity of materials that can be procured advantageously.
17 Sept 2021

Is safety stock included in reorder point? ›

Determining ROP with safety stock

This method is used by businesses that keep extra stock on hand in case of unexpected circumstances. To calculate a reorder point with safety stock, multiply the daily average usage by the lead time and add the amount of safety stock you keep.

What is the maximum stock level? ›

What is Maximum Stock Level? The maximum stock level is a not-to-exceed amount used for inventory planning. This stock level is based on a calculation of the cost of storage, standard order quantities, and the risk of inventory becoming obsolete or spoiling with the passage of time.

How do you determine inventory needs? ›

Take the average number of days (lead time) between ordering items and having these items ready for sale. Multiply this by your average daily sales volume over the past month/quarter/year. Then add your safety stock number.

How do you set maximum and minimum inventory levels? ›

Calculating maximum inventory levels

To calculate maximum inventory levels, use the following formula: maximum inventory levels = reorder point + reorder quantity – [minimum consumption × minimum lead time].

How is danger level calculated? ›

Danger level is that level below which the stock should under no circumstances be allowed to fall. Danger level= Normal consumption X (A)Reorder Period(B)Maximum Reorder Period(C)Maximum Reorder Period in Emergency (D)Minimum Reorder PeriodANS: C51.

How do you calculate safety stock in Excel? ›

By directly using the demand standard variation formula in Excel, we get a demand standard deviation of 141.4 pieces per month. The average lead time is 1.15 months. To get the safety stock quantity, we need to multiply the service factor Z by the demand standard deviation σ and the square root of the lead time L.

How do you calculate stock performance? ›

Divide the gain or loss by the original price of the investment to calculate the performance expressed as a decimal. In this example, you would divide -$200 by $1,500 to get -0.1333.

What is stock and how it works? ›

Stocks are shares of ownership in publicly traded companies. Companies issue them on stock exchanges to raise money, at which point investors buy and sell them based on their potential to go up in value or pay dividends. Buying and holding stocks can help you grow your wealth and reach your long-term financial goals.

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