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Safety Stock Planning

Purpose
Safety stock planning in Supply Network Planning (SNP) allows you to attain a specific service level by creating
safety stock for all intermediate and finished products at various locations throughout the entire supply chain.
Safety stock is used to safeguard stock in the supply chain against uncertain influencing factors. Supply chain
planning is susceptible to a number of influencing factors that cannot be predicted with certainty in advance. For
example, when forecasting customer demand, the quantity required is usually uncertain. In addition to this,
disruptions in production or transportation time fluctuations lead to discrepancies in planned replenishment lead
times. To safeguard yourself against such uncertainties when planning, you can take one or more of the following
measures:
· Overestimate customer demand
· Underestimate production output quantity
· Overestimate procurement lead times
· Use safety stock
While overestimating customer demand is a Demand Planning tool for safeguarding against forecasting errors, you
can model an underestimation of production output quantity and an overestimation of procurement lead times using
production process models (PPMs) and transportation lanes.
You have to address the following questions as part of safety stock planning:
1. At which locations within the supply chain do you want to have safety stock?
2. How much safety stock do you want to hold at a particular location?
Example

With the aid of this simple supply chain, it immediately becomes clear that the question about where to hold safety
stock is a highly complex problem due to the variety of possible combinations (calculated as 2 to the power n – in

The starting point is a service level that you want to attain through observance of the calculated safety stock. you can select a safety stock method in the product master for every location product. but define safety stock that is time-based in interactive Supply Network Planning. safety days’ supply} SM MM For example. Example 1 2 3 4 5 6 7 8 9 10 Expected demand 100 100 100 100 100 100 100 100 100 100 Shortfall quantity 0 0 0 0 0 10 0 0 0 10 Shortfall event - - - - - x - - - x Bucket Total of shortfall quantities: 20 -> beta service level: 1 – (20 / 1000) = 98% Total of shortfall events: 2 -> alpha service level: 1 – (2 / 10) = 80% . You can define this service level in the Lot Size tab page in the product master. · Shortfall-quantity-oriented (beta service level): The service level in percentage means that x percent of the expected total customer demand can be fulfilled within the planning period. and not fall below the defined safety stock. Note that for safety stock method MM. the planner enters the safety stock information directly into the system: Not time-based (static) Time-based (dynamic) Safety Stock SB MB Safety days' supply SZ MZ Max {Safety stock.this example. you might want to define safety stock directly as a safety days’ supply or as the maximum of the safety stock and safety days’ supply. since these demands and the demand locations are already known before the optimization run. the SNP optimizer only considers independent requirements as well as dependent and distributed demands caused by fixed orders. Safety Stock Methods Since safety stock is usually necessary for products at different locations. With the maximum option. the proposed safety stock levels of the extended methods are determined by the system based on scientific safety stock planning algorithms. there are already 64 possibilities). Due to this wide range of possibilities. it is advisable to make use of the planner’s experience and allow the planner to simulate selected planning scenarios. Standard Methods The standard methods differ from one another in their observance of time. Extended Methods While the standard methods are based exclusively on the planner’s experience. It can be interpreted as follows (based on the business process): · Shortfall-event-oriented (alpha service level): The service level in percentage means that no shortfall is expected in x percent of the buckets within the planning period. For these methods. The different methods are split into standard and extended methods here. You specify safety stock that is not time-based on theLot Size tab page in the product master. safety stock can be adjusted dynamically to meet the demand flow.

if they are dependent on the shortfall quantity (variable costs). the system makes a purchase order decision on a time basis. If this prerequisite is met. Forecast Error Determination When calculating the safety stock. which means that procurement can only be triggered for all t buckets. The following two different stockholding methods exist: · Reorder cycle method: With this method.To decide which service level to use. The stockholding method used by SNP when planning demands has a major influence on the algorithm for calculating safety stock. which means that procurement can be triggered if stocks fall below a certain level s (the reorder point). we recommend that you use an alpha service level. Stockholding Method The two service levels result in these four model-supported safety stock methods: Reorder cycle method Reorder point method Alpha service level AT AS Beta service level BT BS The prerequisite for using this method is that shortfall quantities are delivered subsequently (“back order case” as opposed to “lost sales case”). answer this question: Are the costs for subsequently delivering a shortfall quantity dependent on the shortfall quantity or not? If these costs are not dependent on the shortfall quantity (fixed costs). a beta service level would be more appropriate. the system can calculate the safety stock on any step of the supply chain and for each bucket in the planning period. the system makes a purchase order decision on the basis of stock. The following key figures form the starting point for the forecast error calculations: Demand Procurement Planned demand quantity key figure Planned replenishment lead time key figure . the system can take into account a forecast error in both demand and procurement. · Reorder point method: With this method.

All forecasts and forecast errors along this critical path are then projected onto the safety stock location product for safety stock planning. the system first determines all the location products that are to supply the safety stock location product. it is a good idea to interpret this forecast error as a relative forecast error. The standard deviation of the planned actual deviations is interpreted as the forecast error. Modifying the Parameters Multilevel safety stock planning is a very complex issue for any supply chain structure. Algorithms are thus the focus of attention for single-level. It then determines the critical supply path by calculating the maximum replenishment lead time. It will do this until it finds a safety stock location product. For demand.Realized demand quantity key figure Realized replenishment lead time key figure The system calculates the forecast error by determining the planned actual deviation of the relevant key figures. it is more advisable to use relative forecast errors in a dynamic environment than constant forecast errors. the system first determines all the location products supplied by the safety stock location product. To more accurately support the future forecast. non-time-based safety stock planning that is then incorporated within a multilevel. It then projects all the forecasts and forecast errors onto the safety stock location product (considering all the quantity and time relationships) to calculate the safety stock. an incremental forecast unexpectedly causes the safety stock to fall because the forecast error decreases in relation to the forecast. For procurement. You can also enter the demand forecast error and replenishment lead time forecast error directly in the location product master. . We recommend that you do this in the following circumstances: · If there is no historical data (because the product is new for instance) · If the amount of historical data is so small that it is impossible to calculate a statistically relevant forecast error · If the forecast error can be considered constant In the safety stock planning profile. This makes it necessary for the system to adjust the forecast and forecast error for demand and procurement. time-based supply chain planning by adjusting the input parameters. you keep the relationship between forecast error and forecast (variation coefficient). or until it finds external supply for the supply chain. so that instead of keeping the forecast error itself. If there is a forecast error in procurement (a replenishment lead time forecast error). you can specify if the system is to calculate the forecast error during extended safety stock planning from the historical data or from the location product master data. This is clarified in the following example: Example Mean value of the planned demand quantity: 100 Standard deviation of the planned actual deviations: 10 1 2 3 Demand Forecast 100 1000 1000 Forecast error if the standard deviation is constant 10 10 10 10 10 Forecast error if the variation coefficient is constant 10 100 100 10 10 Bucket 4 5 100 100 If the forecast error is not dependent on the forecast. It is therefore a good idea to implement high-performance heuristics. For this reason. the demand forecast error is adjusted based on the assumption that the two forecast errors are independent of each other. A forecast error is thus determined from the historical data and the future forecast is based on this forecast error.

. For more information see Master Data Setup for Safety Stock Planning. The values you have defined are then considered during heuristic or optimization-based SNP planning. Prerequisites · You have defined the specific master data for standard safety stock planning. The system uses the historical data to calculate the forecast error for the demand forecast and the RLT. See Also Extended Safety Stock Planning Extended Safety Stock Planning Use Extended safety stock planning in Supply Network Planning (SNP) automatically calculates the safety stock using data that you specified as mandatory in the system. You also specify the current demand forecast and the historical data using the demand forecast and the replenishment lead time (RLT) as key figures. MB. the SNP optimizer only considers independent demands as well as dependent and distributed demands caused by fixed orders. Activities The safety stock values you defined are shown in interactive SNP planning and the system considers them during the SNP planning runs. you have to use standard SNP planning area 9ASNP05 and standard planning book 9ASNP_SSP (or a planning area and planning book based on these) that contain the following key figures: 9ASAFETY – Safety Stock (Planned) and 9ASVTTY – Safety Days’ Supply. for example. you can choose from six different safety stock methods with which you define the safety stock directly using the safety days’ supply or as a maximum of safety stock and safety days’ supply. When doing so. or MM. Note that for safety stock method MM. a service level that you want to attain through observance of the calculated safety stock. since these demands and the demand locations are already known before the optimization run. This includes. · If you wish to use safety stock methods MZ. Prerequisites · You have assessed your supply chain and determined at which stages you want to plan safety stock. You can define these values as time-independent in the location product master data or time-dependent in interactive SNP planning.Standard Safety Stock Planning Use You use standard safety stock planning in Supply Network Planning (SNP) to build up safety stock for location products according to values that match past experience.

 ¡ The system determines the RLT forecast error from the historical data or location product master data that you specified as mandatory (settings in SFT planning profile). For more information. the service level and the safety stock methods in the location product master data. good issue processing times. You specify the independent demands in the system as a key figure for the demand forecast. This includes.  ¡ If the system determines the RLT using the supply chain model. Features The system considers the following factors when calculating the safety stock: · Demand forecast and demand forecast error · Replenishment lead time (RLT) and RLT forecast error · Service level · Safety stock method · Demand type The reorder point method that you determined in the location product master data does not influence safety stock planning. it adds up the respective production times.· You have determined the special master data for safety stock planning next to the basic SNP planning master data (including quota arrangements). goods receipt processing times. lot size. With the safety stock method you determine the combination of service level and order policy that the system is to consider. The system determines the dependent demands using transportation lanes and production process models (PPM) or production data structures (PDS). or warehouse stock. and planned delivery times.  ¡ During the reorder cycle methods AT and BT the system interprets the target days’ supply from the location product master data as an order cycle. The system determines these factors as follows: · Demand Forecast Determination  ¡ The forecasted demand for a product at a location is the sum of the independent and dependent demands at the location and all downstream locations. for example. In this profile you can.  ¡ The system determines the demands forecast error from the historical data or location product master data that you specified as mandatory (settings in SFT planning profile). transportation times. and specify the demand type (regular or sporadic). Procurement from upstream safety stock is not restricted. · Service Level Determination and Safety Stock Method Determination  ¡ The system determines the service level and the safety stock method from the location product master data (Lot Size tab page). If there are alternative procurement options. . see Safety Stock Planning Profile. For more information see Master Data Setup for Safety Stock Planning. for example. the system always considers the option that takes the longest time. The system does not consider restrictions on capacity size. · Replenishment Lead Time Determination  ¡ The RLT for a product at a location is the total time for the in-house production or the external procurement of a product (including its components). determine how the system calculates the forecast error (from historical or master data). The system also takes into account inbound quota arrangements. · You have created a safety stock planning profile (SFT planning profile). The system determines the RLT using the supply chain model or from location product master data (settings in SFT planning profile).

· Demand Type Determination  ¡ You can use safety stock planning both for products with regular demand and also for products with sporadic demand.  ¡ During the reorder point methods AS and BS the system accepts a monitoring interval (period of time between successive reviews of the warehouse stock) from one period. determine the forecast error in the location product master data yourself. ¡ During the reorder point method BS the system uses the target days’ supply from the location product master data to calculate the purchase order quantity. Object Selection In this section you specify the location products for extended safety stock planning. For the former. The system plans the safety stock for those location products for which you have determined an extended safety stock method in the master data. and 9ASAFETY. Activities On the SAP Easy Access screen. You can determine whether it is regular or sporadic demand. You can use. You can. safety stock (planned). however. the formulas used assume normal distribution. Application In this section you specify how the system creates the application log (level of detail. You can also specify the key figure in which the system saves the safety stock (for example. the SNP standard planning area 9ASNP05 (or a planning area based on it) that contains the key figures 9ADFCST. manually change it or copy it into another planning version. 9ADFCST). forecasting. for Data example. choose Advanced Planning and Optimization →Supply Network Planning→ Planning → Safety Stock Planning. You can display the calculated safety stock as a key figure in interactive Supply Network Planning and. you then enter the data described below: Section Input data Planning In this section you then specify the planning area where the planning objects and key figures are. length of Log storage).  ¡ The system determines the demand type from the settings you made in the SFT planning profile. On the Safety Stock Planning screen. Historical Data In this section you specify the key figures for the demand forecast historical data which the system uses to calculate the forecast error. You can also use the calculated safety stock inProduction Planning & Detailed Scheduling (PP/DS) and Capable-to-Match (CTM). You can also specify the key figure for the demand forecast. if required. for the latter they use gamma distribution. immediate display. based on which the system calculates the safety stock (for example. or whether the system is to automatically determine the demand type using historical data. . 9ASAFETY) and the SFT planning profile the system uses.

AS. SM for time-independent determination and methods MB.  ¡ Service Level (%)  ¡ Demand Fcast Err.  ¡ Min. SFT . Lead Time – Can also be calculated by the system using historical data.  ¡ RLT Fcast Error (%)– Can also be calculated by the system using historical data.  ¡ Target Days’ Supply – During safety stock methods AT and BT the system interprets this value as an order cycle. MM for time-dependent determination. Process 1. If you use standard safety stock planning. SFT  ¡ Max. 3.is considered by the system during safety stock methods SB and SM.  ¡ Replen. Determine whether you want to use standard or extended safety stock planning. During safety stock method BS the system uses this value to calculate the purchase order quantity. SZ. enter the relevant data in the following fields on the Lot Size tab page in the location product master:  ¡ Safety Stock Method – Methods SB. If you use extended safety stock planning. see the associated F1 Help. BT and BS. (%) – Can also be calculated by the system using historical data. 2. MZ. enter the relevant data in the following fields on the Lot Size tab page in the location product master:  ¡ Safety Stock Method – Methods AT.Considered by the system during safety stock methods SZ and SM.Master Data Setup for Safety Stock Planning Purpose This document describes which specific master data you must define for safety stock planning in Supply Network Planning (SNP).  ¡ Safety Days’ Supply .  ¡ Safety Stock . For more information.