Dynamic Safety Stock and Reorder Point

Current safety stock and reorder points are relatively static. It assumes future sales with time is base on average historical sales, and vary with normal distribution.

In a competitive sales environment where substitutes are readily available at the right price, the assumption that future sales is base on historical average sales no longer holds. More and more companies are using forecasts for future demand to decide how much inventory to hold.

 

Future sales forecast, and the accuracy of sales forecast can be used to adjust safety stock and reorder points monthly. This because changes in average demand, variability of demand, and forecast accuracy affects safety stock levels, and in turn, affect reorder point. Base on demand characteristics, safety stock and reorder point can be updated monthly, or even weekly.