Let me try and explain to you through a mix of functional procedures and how SAP calculates the Safety Stock:
In normal materials management there are basically 2 basic inventory management systems, the P system and the Q system.
P system is a system wherein replenishment is done keeping the quantity constant. The period becomes the variant. In other words youfix the quantity you want the stock to dip, to trigger a requirement. As soon as the stock level is reached you replenish the stock. During a lean period the time taken to reach the level will be longer and during an active period the time taken to reach that stock could drop.This normally relates with your consumption based planning.
Q system is a system wherein replenishment is done keepingthe period constant. The quantity becomes the variant. In other words you will check for the level of stock at fixed time intervals (daily, weekly, monthly etc.) compare it with the requirements on that day and trigger the procurement process for replenishment.This normally relates with your MRP.
Now there are 4 more factors that could affect the idealistic procurement pattern:
2. Manufacuring Lead-time
3. Transporting Lead-time
4. Stock conversion Lead-time (or Quality Inspection lead time)
A delay in any or all of the above can have effect on the entire replenishment process and the stock. A buffer stock must be designed to take into account the above coverage. Again the determination of your safety stock depends on the accuracy of your forecast. Higheryour accuracy, lower your safety stock. This relationship between forecast accuracy and service level
is denoted by factor R. This also takes into account that the customer demand cannot be always satisfied 100% of the time.
Hence what we have is:
R = Relationship between forecast accuracy and service level (Service Factor)
W = Delivery time (in days) / Forecast Period (in days)
MAD =Mean absolute deviation (parameter for forecast accuracy)
Now If replenishment lead time is greater than the forecast period by factor W then:
Safety Stock = R x Sq.rt. W x MAD
Safety Stock = R x W x MAD
Now in SAP If the material is produced in-house, the delivery time is: opening period + in-house production time + goods receipt processing time. It is expressed in workdays. Theforecast period is taken from the material master record and is also expressed in workdays.
If the material is procured externally, the delivery time is: Processing time for purchasing + planned delivery time + goods receipt processing time. It is expressed in calendar days. The forecast period is taken from the material master record and is also expressed in calendar days.
As a result of this youwill have observed now that the safety stock must cover both the unplanned material excess consumption, as well as the additional requirements caused by delayed deliveries.
In SAP you can specify a minimum safety stock. If the result of the safety stock calulation by the system is lower than this limit, the safety stock is automatically set to this value. You enter the minimum safety stock inthe material master record (MRP 2 screen).
In IMG -> Materials Management -> consumption Based Planning -> Master Data -> Check MRP Types (transaction code OMDQ) you use the indicator Calculate Safety Stock so that system calculates the safety stock automatically.
The safety stock can be calculated automatically for materials planned with one of the consumption-based planningprocedures if:
1. The service level has been maintained in the material master record.
2. Historical data exists
3. The forecast has been carried out for the material.
Dynamic Safety Stock:
If the option Define Range of coverage profiles is chosen in IMG (Tr.Code OM1A) you can determine a safety stock level that takes into account:
2. Range of coverage