The SAP®-ERP-System provides, like any other system with MRP capabilities, methods of planning with safety stock. In this blog post, I will show you four different ways of calculating safety stock in SAP.
Safety Stock is a level of extra stock held of an item to mitigate the risk of stockouts. An adequate safety stock buffers forecast uncertainties as well as production variances. However, as this stock symbolises not used capital as well, it is a constant task for planners to optimise the safety stock level.
Static Safety Stock in SAP-ERP
As the name suggests, the planner has to calculate and update the safety stock in the material master manually. This setting creates an additional demand element for the MRP and therefore an increased supply quantity. The demand element is continuously valid for the whole planning period.
This manual process is not only inconvenient regarding missing system support but also possess the risk of having out-dated figures in your master data. In addition to that, the static safety stock does not adjust to a changing supply or demand situation. Despite these downsides, the Static Safety Stock is still the most frequently used method. People use it that often because it is fast to maintain, clear to understand and easy to read in the system.
Dynamic Safety Stock in SAP-ERP
With this method, you can determine a demand-driven safety stock. The MRP calculates the stock level based on average daily demand and a given coverage profile. Within this profile, you define a maximum, a target and a minimum number of days the stock level must cover. With every MRP-Run the SAP System checks if the available stock is below the minimum stock level. If so it will increase the planned order to match the target level.
The calculation of the average daily demand, as well as the check for the minimum stock level, is time-dependent. That results in different target stock quantities over time. Negative about this method is that it is not so transparent. As the system increases the planned orders, there is no obvious value you can look at to see the safety stock level.
Automatic Safety Stock in SAP-ERP
The automatic calculation of safety stock is usually used with consumption driven planning methods (e.g. automatic reorder point, forecast planning) but may also apply in demand-driven planning. The SAP-System uses the MAD of the forecast to describe the uncertainty of demand and to buffer it. Therefore, the safety stock gets updated every time you perform a new forecast. Another parameter in the equation is the security factor that represents the level of security you want to have. Also, you can define the minimum safety stock in the material master.
You can see the stock level in the same way as the static safety stock. So, this method provides excellent visibility as well. If you perform regular forecasts, the stock level will adjust as well. Hence you get a more dynamic approach and reduce the risk of old master data with this method. Unfortunately, the transparency of the calculation is not as good. You need to understand the methods of statistical forecasting and the formula of the SAP-System to follow what it has calculated.
Safety Time in SAP-ERP
You can define a buffer also as a time not only as a stock. If the planning run schedules all supply elements some days before they are needed you get a buffer as well. Moreover, that is what the safety time defines – the offset between demand time and the planned supply time.
This method is easy to set up and provides a certain degree of flexibility. But it is not as transparent as the static safety stock because it lacks a simple figure to read.
Now you might ask: What is the best kind of safety stock in SAP-ERP? Like so often the answer is: It depends. It depends on the MRP type you use to plan your materials, on the demand profile of your articles and many other factors. I wanted to give you a rough overview of the different options you have when setting up safety stock for your materials.
Many companies use material classification to group articles with similar characteristics. These classes help you when determining the right safety stock method. In addition, they also help you when maintaining material masters.
Have a look at my book “First Steps in SAP Production Processes” if you want to learn more about the basics of production planning in SAP-ERP.