Question

a.

A key element in Materials Resource Planning (MRP) in a production environment is ‘Safety Stock’. Why is it necessary to maintain a safety stock of end items and lower level items, despite the availability of sophisticated tools and techniques for MRP? Give one example of safety stock for end item, and one example of safety stock for lower level item.

b.

What is analogous to safety stock in ‘services operations’ environment?

Answer 1

1. Safety stock acts as a buffer against uncertainties in production, supply chain and oter eventualities that may delay the availability of the item when it is needed.

Lower level items are basic components that may be used in production of many end items. Basically they are the at the lowest level of product tree, existing in higher numbers. The safety stock of these items is necessary as a guard against failures and defects in these items which may affect the processes up the level. Being low value items, their stocking and holding does not involve higher costs, hence does not affect te total cost significantly. An example of low level item is nuts, bolts and rivets.

End level items are the final products that are ready to be shipped. Safety stock of these items is necessary to avoid stock out and related costs ( opportunity cost and goodwill) if the production / supply system fails to deliver sufficient numbers due to unavoidable reasons. An example of stock of end products is inventory of cars and motorcycles in the high sales festival season in India ( and some other countries) when everyone wants to buy a vehicle.

b. Efficiency of service delivery, unlike production processes, depend upon the effectiveness with which te capacity planning in service is done. This includes advanced forecasting models to predict accurately the pattern of demand over time and making arrangements of resources, materials and manpower and time with adequate buffer levels to meet the demand levels without opportunity loss. An example is preparation of dinner buffet in the restaurant or availability of vehicles for excursion in resorts during vacation time / weekends.