Every supply chain manager must deal with variability. Of course, there are techniques for reducing variability, but even the best program cannot eliminate it completely.
In Feb of 2012, we were able to publish a guest blog post at LogisticsViewPoints that addressed this topic.
The idea is that safety stock can help you buffer against this variability. What is interesting is that that is really not a solution about inventory, it is about reducing lost sales, reducing late shipments (and upset customers), and reducing expediting expenses (and headaches). Here is quote from the article:
Safety stock allows you to seamlessly meet unpredictable spikes in demand, and it allows you to protect your customers from production breakdowns, supplier failures, or unusually long shipment times. Safety stock helps increase sales, reduce late shipments to your customers (keeping them happy or avoiding contractual penalties), and reduce the cost of expediting by minimizing the times you are short on stock.
In the end, you may not be able to control variability, but you can control what you do about it. The blog takes an idea from Hopp and Spearman’s book, Factory Physics:
In this book, they mention that you can either choose how you will buffer against variability or it will be “chosen” for you. When it is “chosen” for you, it shows up as lost sales, late shipment penalties, expediting, and a more chaotic supply chain.