What Is The Role Of Safety Stock In An MRP System?

Safety stock defines the minimum level of inventory that the MRP system will seek to maintain. In the absence of other requirements (or after other requirements are fulfilled), if inventory falls below the safety stock level, the MRP system should generate orders sufficient to maintain safety stock at the specified level.

In practice the level of safety stock should be set to accommodate
- unplanned orders (as from Development Engineering) or other deviations from the master schedule
- delays in receiving materiel from suppliers
- mismatch between physical inventory and computer records.

Safety stock is a term used by inventory specialists to describe a level of extra stock that is maintained below the cycle stock to buffer against stock outs. Safety stock (also called buffer stock) exists to counter uncertainties in supply and demand. Safety stock is defined as extra units of inventory carried as protection against possible stock outs (shortfall in raw material or packaging). By having an adequate amount of safety stock on hand, a company can meet a sales demand which exceeds the demand they forecasted without altering their production plan. It is held when an organization cannot accurately predict demand and/or lead time for the product. It serves as an insurance against stock outs.

The role of safety stock in MRP system is very significant. Safety stock buffers uncertainties in the quantities. These uncertainties are caused because of quality. For offsetting any uncertainties in timing, safety lead time is used. Increase in safety stock, means more inventory is being carried. This reduces the overall performance of Material Requirements Planning or MRP. The best thing which the company can do to decrease the safety stock is to eliminate the uncertainties in the quantities.