Unfortunately, this complex equation has the particularity of being exponential. This implies that reaching a certain level of service is done at the expense of your cash ratio because a high level of cash is tied up in large safety stocks. However, if a high level of safety stock also means a high level of tied-up cash. It is therefore necessary to set up a safety stock from which to draw to manage the contingencies of demand and sourcing. To achieve an outstanding service level, a brand must be able to compensate for any stockout in the shortest possible time. The service level is therefore naturally linked to the company’s inventory management. In case of stockout, the service level declines because the customers must, at best, wait for the product to be available again, or, at worst, make their purchase from a competitor. Balancing service level and tied-up cash: a strategic trade-off Lucas Gaurichon, Supply Chain Manager at IZIPIZI, shares his experience on this topic. For safety stock to be an asset rather than a liability for a company, it is essential to define its ideal level. While having a buffer is important to be able to respond effectively to the variability of demand, it is important to avoid overstocking. Its role is to mitigate all risks of inventory management disruption: demand behavior, shortages, production delays, supply delays, etc. As a critical element of Supply Chain management, safety stock is necessary to ensure smooth operations in many companies.
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