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Inventory Management, Service Level And Safety Stock

Author

Listed:
  • Alin Constantin RADASANU

    (Alexandru Ioan Cuza University of Iasi, Romania, Faculty of Economics and Business Administration, alin.radasanu@ropharma.ro, Iasi, Romania,)

Abstract

There are many studies that emphasize as a first objective of inventory management to minimize the value invested in inventory because it has a direct impact on return on assets. This approach is not fully correct. The actual objective is to determine the value and the mix of inventory that support a high service level for customers and that maximizing the companies� financial performance. Many companies look at their own demand fluctuations and assume that there are too many variables to predict demand variability. Service level is used in inventory management to measure the performance of inventory policies and represents the probability of not being stock-out and not losing sales. Safety stock is inventory that is carried to prevent stock outs. Safety stock determinations are not intended to eliminate all stock outs, just majority of them. Companies choose to keep safety stock level high as a buffer against demand variability resulting in inefficiencies and high working capital requirements. Safety stock optimization enables companies to achieve savings and increase inventory turns.

Suggested Citation

  • Alin Constantin RADASANU, 2016. "Inventory Management, Service Level And Safety Stock," Journal of Public Administration, Finance and Law, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 9(9), pages 145-153, June.
    • Handle: RePEc:aic:jopafl:y:2016:v:9:p:145-153
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    Citations

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    Cited by:

    1. Tomasz Brzęczek, 2020. "Optimisation of product portfolio sales and their risk subject to product width and diversity," Review of Managerial Science, Springer, vol. 14(5), pages 1009-1027, October.
    2. Daniela Favaretto & Alessandro Marin & Marco Tolotti, 2021. "A data-driven and risk-based prudential approach to validate the DDMRP planning and control system," Working Papers 09, Department of Management, Università Ca' Foscari Venezia.
    3. Daniela Favaretto & Alessandro Marin & Marco Tolotti, 2023. "A theoretical validation of the DDMRP reorder policy," Computational Management Science, Springer, vol. 20(1), pages 1-28, December.

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