What are the TOP-3 Reasons Companies Hold Buffer (Safety) Stock?
Buffer (safety) stock in light of the fuel price and raw materials supply crisis in EU
Safety stock is a buffer strategy for companies in supply crises. The heated economic war with Russia has already triggered a food and supply shock in the EU. Combined with the high price of fuel and the lack of raw materials, the safety stock strategy has gained a large number of new supporters.
What is buffer (safety) stock?
This is a certain number of extra goods, stocks, articles – which producers/traders/distributors keeps in their warehouses. In this way they can ensure its products will continue to reach customers if there are problems with production or deliveries. Like closing borders due to a global pandemic, for example. The raw materials not being delivered in time. The price of fuel has become so high that production is now uncompetitive. Or because of a strike by EU delivery truck drivers – again for the same reason: excessively high fuel prices.
What are the top 3 reasons to have safety stock?
Protect against unforeseen variation and disruptions in the supply chain
Covid-19 showed how fragile modern supply chains are. In just one month, the world has gone from a global village to 195 countries, each on its own. Blocked national borders, blockaded ports and airports. Ship congestion in the Suez Canal… Logistics and supply chains were simply not ready. It was a real catastrophe. And just as companies’ logistics departments began to catch their breath and deal with the crisis caused by the pandemic, another huge crisis hit with all its might. The new Iron Curtain that descended on Russia and its closest allies disrupted decades-old supply chains. Russia is a huge country in terms of territory, covering 11 time zones. Since the closure of its air, land and sea borders to EU, UK and US ships, carriers and aircraft, logistics costs, particularly to some Asian destinations, have increased many-fold.
Protection against large fluctuations in product price
Fuel ans gas prices are breaking record after record. Sanctions on Russian energy carriers and their exports have further strengthened this trend. Transportation prices have been rising since June of 2020, according to the Logistics Manager’s Index (LMI)-which tracks logistics industry growth across transportation, warehousing, and inventory-and have hit record highs over the past year. And nothing affects the price of an end product more than the cost of the fuel and electricity needed to produce and transport that product to the end user.
Preventing the product from stocking out in the retail chain and ensuring a high level of customer satisfaction
The customer should always be happy – that’s the main reason to keep safety stock! According to a Harvard University study over 40% of shoppers go to another store if the product they are looking for is missing. Today’s customer is not looking for a substitute. This is a culture of consumer behavior that is highly prevalent in today’s world. The modern customer knows exactly what he wants and wants it immediately. If you don’t have it on your shelf – he will find it, but elsewhere. This is why stockouts are such a big problem for any business. It’s estimated that this problem cause retailers almost one trillion dollars in lost sales worldwide.
The other big reason for this is the online shopping. Most of today’s consumers don’t wait for inventory to be replenished. They head somewhere else.
But predicting supply and demand disruptions is tough. That’s why securing safety stock is a good business decision.
How to calculate the safety stock you need?
There are four types of situations for safety stock:
1. Demand uncertainty: Lead time never changes and demand changes.
2. Lead time uncertainty: Demand never changes and the lead time changes.
3. Lead time and the demand changes, and are independent.
4. Demand changes depend on lead time changes.
With this formula you have flexibility to calculate the necessary safety stock in all the 4 situations:
Best packaging solutions for buffer (safety) stock
Zamko is your independent supplier and specialist who can pack your worries and secure your future. Sometimes the best solution is ingeniously simple. Like plastic pallet box. Ensure your safety stock with pallet boxes designed for this purpose. You can order customized and foldable pallet boxes that will save you fuel costs due to space optimization in the vehicle and warehouse.
Zamko delivers its products throughout Europe and beyond. Call now: https://zamko.eu/contact/
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