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Changing Safety Stock


By Anonymous - Posted on 13 February 2012

Records of actual demand and forecasts are normally made on a weekly or monthly basis for all items regardless of what the individual lead times are. It is impossible to measure the variation in demand about average for each of the lead times. Some method of adjusting standard deviation for the different time intervals is needed.

As the lead times increases, the standard deviation increases. However, it will not increase in direct proportion. As the time interval increases, there is a smoothing effect, and the longer the time interval, the more smoothing take place. The following adjustment can be made to the standard deviation or the safety
stock to compensate for differences between lead-time interval (LTI) and forecast interval (FI). While not exact, the formula gives a good approximation:

 

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