Bowersox formula
Safety stocks are generally used to hedge against fluctuations in demand. However, conventionally calculated safety stocks do not take into account the fact that suppliers on the procurement side also do not deliver 100% reliably. This is usually reflected in fluctuating delivery times.
In the same way that a required safety stock can be determined on the demand side from the fluctuations in demand quantities, a safety time can also be calculated on the procurement side, which is taken into account in addition to the delivery time actually expected or agreed with the supplier when reordering in order to receive the required material on time. Multiplied by the average consumption or demand per day, this also results in a procurement security stock.
In practice, however, it is not absolutely necessary to add both safety stocks, as unexpected demand quantities and unexpected delivery delays are not always synchronized. In many cases, safety stock on one side of the warehouse is sufficient to compensate for the uncertainties on the other side. The Bowersox formula attempts a compromise by determining an integrated safety stock from the demand fluctuations and the delivery time fluctuations of an item, instead of simply adding the two safety stocks together. In this way, it achieves a lower total security inventory.
Our tip:
Instead of building up a real physical safety stock on the procurement side, you can also work with safety time. On average, you can manage with less procurement safety stock in this way, as stock is only built up from the proportion of safety time not required for an individual delivery.
