ECONOMICS

Detailed explanation-1: -The optimal level depends on several factors, including inventory velocity, current and future demand, sales volume and supplier lead times. As a rule of thumb, the safety stock amount should be the amount of inventory used per day multiplied by the lead time in days.

Detailed explanation-2: -Letting Safety Stock Decline as Supplier Lead Time Reduces Safety stock helps to address variability in your supply chain and demand, so supplier lead time should not impact your safety stock, only your cycle stock. You should always safeguard your inventory by looking at the standard deviation time.

Detailed explanation-3: -Calculating maximum inventory levels To calculate maximum inventory levels, use the following formula: maximum inventory levels = reorder point + reorder quantity – [minimum consumption × minimum lead time].

Detailed explanation-4: -The appropriate level of safety inventory is determined by the uncertainty of both demand and supply and the desired level of cycle inventory. As the uncertainty of supply or demand grows, the required level of safety inventories increases.