Such stock outs are caused usually by:Changes in the demand for the itemInaccuracies in the forecasts of the itemUnforeseen disruption to the supply line of the itemMaintaining safety stock for an item comes with its own challenges.
Some of the major factors are:External Factors:Fluctuation in demand:A spike in consumer demand often results in stock outs.
Spikes in consumer demand can be attributed to many reasons including festivals, seasonal and any act of nature (epidemic).Variation in supply line:Any disruption to the supply line by the vendor leads to stock outs.
Such inaccuracies might be due to the nature of the product itself, or lack of accurate data and lack of proper tools and techniques.Production delays:Any unexpected delays in the production and transportation in the internal value chain lead to stock outs.
It might be due to unexpected breakdowns in the production line and industrial unrest.Variation in consumer demand is the single major reason for the maintenance of safety stocks.Stock outs are undesirable as they adversely affect the business.
Some of the major impacts to business are:Loss of Sale:In the highly competitive marketplace, it is quite tough to regain a lost sale, and often declared as the ‘lost opportunity’.Erosion of Market Share: Poor service delivery due to stock out starts with the erosion of customer base and ends with the erosion of market share.Strained Supply chain: Stock out puts additional burden on the supply chain, and it strains the relationship between partners of supply chain.The advantages of maintaining safety stock levelsHolding sufficient levels of safety stock reduces the risk to stock out and there by provides the business the following insurance cover:Prevents stock out due to sudden spikes in consumer demandsPrevents stock out due to uncertain lead times of vendors and internal production linePrevents stock out due to disruption to the supply line from vendorsPrevents stock out due to inaccurate forecastEnsures customer service and satisfaction levelsEnsures continued sales and market shareHelps to maintain healthy relationship with supply chain partnersHelps to automate the reorder pointsHow to employ Safety stock in the supply chain?Though the purpose of maintaining safety stock is to avoid stock outs, it is not intended for all stock outs but for majority of them.