Safety period and Standard Recovery Time
Mark Fischer
What is safety stock? How to calculate it? You can find many books describing the whole theory about this concept. In the end, in real life, people are more approximate, they speak of "three days of safety stock", "10 days for this product because it is strategic." When they are asked how they chose these values their answer is usually "this is the usage in my business" or "I want to be sure that I will protect my customer." Ask them why 3 days and not 3.1? The answer is always the same: "I do not know."
Then ask: "why do you have this safety stock? For which type of event it protects you?". Generaly you've got a blank. Trying to help your interlocutor, you can ask if this safety stock has been designed to protect him against a nuclear bomb explosion in the site, a flood of 1 meter high, or a machine breakdown. He will answer: "of course not for the bomb and floods". Ask him to explain what is a machine breakdown: "is it the one which happen every week or the one which happened 2 years ago, forcing us to call a sub-contractor to produce during the 10 days of repair?".
You guessed it: the safety stock must be designed to protect against defined events characterized in terms of occurence and severity. But to translate these factors in terms of stock settings is another matter!
How to define a policy for safety stocks?
First point: a safety stock does not protect you from any problems. The easiest way to characterize the incidents to be "absorbed" by the safety stock is to define a time period during which this stocks has to protect you. In my industry, the automotive industry, I usually take 90/100 days. It means that approximately once every quarter, my safety stock is not enough and I have to implement extraodinaires solutions to solve this situation.
To treat 4 times per year an issue due to a safety stock sizing fits me very well. If I have 1000 product references to manage, I have statistically only 10 emergencies per day on average: it will not be a boring day!
Define a period covered by the safety stock is the entry point. This period is called the safety period
The second step is to define the time resolution of issues that arise during this period. For VRO, these are problems associated with failures of supplier process or exceptional demand which could lead to a capacity problem. At this stage, we can not avoid to review the procurement order history and analyze what happened for each shortage and especially the time it needed to recover a normal situation.
How? It's very simple, keep a daily diary where you note the problems encountered by supplier and the time taken to recover the normal situation. Keep this diary simple, by recording only:
- date
- supplier
- part number
- quantity ordered
- total quantity ordered for a week
- reason mentioned by the supplier
- means used to recover the situation
- solution to solve definitively this problem
- your point of view about this solution
- date on which the entire quantity ordered has been provided
By keeping this diary up to date, you will get a ton of data which will help you to define the standard recovery time: maximum time to recover a supplier shortage situation during your safety period, in our case: a quarter.
The maximum time observed to recover a situation happening within the safety period is called the standard recovery time.
If the supplier is EXW, the standard recovery time does not include the transportation (even if it is organized in a case of shortage by the supplier).
Conclusion
You do not need calculation but a common sense and observation. And as it is very difficult in the crazy life of a scheduler to remember what happened a week ago: do not forget to keep your diary: is the key to a good definition of the standard recovery time of a supplier for a specific or generic product.
By the way: do not forget to keep pressure on your supplier during the incident: it is the best way to reduce its standard reaction time!
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