The SAP Safety Stock Definition and Your ERP
What would you say if you found out that your company software systematically encouraged you to overstock your spare parts inventory?
Crazy idea right?
After all isn’t the software supposed to help you to get it right?
Well, this is the exact situation that I believe occurs with some installations of SAP because of the definition of safety stock.
Here’s how it works.
One of the key values that we need to understand in order to manage our spare parts inventory is the re-order point.
This is the point at which you decide to order more spares to replenish the stock of inventory.
In effect, this is the point at which you decide to spend more money, so this is a pretty important figure.
Of course there are different ways to decide what the reorder point is; there is the ROP system and the Max-Min system, where the Min acts as the re-order point.
Both approaches involve the consideration of safety stock. In some circumstance these two approaches even produce the same value.
However, in some installations of SAP they use an SAP safety stock definition that is different to the way that the rest of the world uses the term.
Yes, that’s correct, this is a use of the term safety stock that is unique to these SAP installations.
If you are not aware of this you will mis-interpret the term safety stock and will almost certainly overstock your inventory.
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Posted by: Phillip Slater