Determining Safety Stock for an Omni-Channel Environment

Abstract

The purpose of this article is to determine the safety stock for an omni-channel environment. The “Square Root Law” (for centralization of storage facilities) was proposed to combine the safety stock for both online and offline channels. A simulation study was conducted using a spreadsheet program and three scenarios were created based on review time, lead time and safety factor. This was based on the mean demand and standard deviation of the product's demand distribution. The study found that the sum of lead time and review time are significant in determining the amount of safety stock, and demand variability is a crucial determinant for safety stock. Recommendations are provided as guidelines for lowering the amount of safety stock in omni-channel environment.

Planning delivery-by-drone micro-fulfilment centres

“…Finally, community safety stock is related to the square root of the number of facilities, as described first by Schwarz (1981), applied recently by Pham et al (2020), and further investigated by Oeser (2019). Equation ( 4) assumes an arborescent distribution system, meaning that no trans-shipments between MFCs are considered, i.e., each community is only served by one MFC.…”

Integrating Mathematical and Simulation Approach for Optimizing Production and Distribution Planning With Lateral Transshipment in a Supply Chain

“…Safety stock is an additional inventory that can mitigate risk of stock outs. It helps to accommodate supply or demand uncertainties Pham et al (2020) demonstrated the benefit of safety stock in a supply chain with uncertainty. Zhou et al ( 2020) formulated a (s,S) inventory model of Automated Teller Machines (ATMs) with two safety stocks corresponding to out-of-stock and full-of-stock risks.…”