Pro's & con's of each safety stock policy
Statistical Safety Stock
Pros:
Takes into account forecast uncertainty and uses confidence factor, which is derived by ABC calculations.
When the forecast is not as expected it usually means that there is high uncertainty, which is reflected in higher safety stock.
Cons:
Can be challenging to understand
As it relies on normal distribution, it is not always well suited for slow moving items and items with erratic demand pattern.
It is part of forecast calculation which means that when forecast has been overridden, safety stock is still depending on the original forecast.
Safety Stock Units
Pros:
Simple and transparent for users coming from spreadsheets.
Can be mapped from ERP.
Cons:
Not taking into account forecast uncertainty or length of order period as it is not connected to set service levels.
Safety Stock Days
Pros:
Always in sync with total demand e.g. if it is low, safety stock will be low and vice versa.
Good option for seasonal items - when item is out of season and there is no forecast it means that there will be no safety stock as well.
Cons:
No connection to forecast uncertainty, which means that when there is very low forecast but very high forecast uncertainty, the safety stock will not cover that well.
Safety stock can change a lot from day to day and therefore order proposals as well.