Documentation for Streamline 4.x

# User Guide

**1. General Information**

**2. Starting Up**

**3. Connecting data**

**4. Demand and Sales Forecasting**

**5. Inventory Planning**

**6. Reference**

Documentation for Streamline 4.x

**1. General Information**

**2. Starting Up**

**3. Connecting data**

**4. Demand and Sales Forecasting**

**5. Inventory Planning**

**6. Reference**

safety-stock-calculation

There are two different safety stocks in Streamline depending on its configuration:

**Safety stock**– refers to the safety stock of any location’s warehouse. Its calculation is configured for all your locations at once.

**DC safety stock**– refers to the**Distribution center**'s safety stock. Its calculation is configured for all your DCs at once as well.

Depending on the inventory replenishment strategy, **Safety stock** (and **DC safety stock**) is an assessment of the reserve stock for:

- the next
**Order cycle**if the periodic strategy is used; or - the
**Lead time**if the min/max approach is used.

Depending on the model type, the way Streamline calculates the **Safety stock** is different.

For all the model types, except the intermittent model, **Safety stock** can be calculated using three methods:

- Computed based on the given
**Service level**percentage using the formula:

, (1)

where:

`δ`

is unbiased standard deviation of the model on the learning set;

`t`

is the**Order cycle**value if the*periodic strategy*is used, or the**Lead time**value in the case of the*min/max replenishment strategy*. The**Order cycle**and**Lead time**values are converted to the data aggregation periods before the calculation.

- Taken as the demand of
`n`

data aggregation periods coming after the**Lead time**plus**Order cycle**. This number of periods is the**Safety stock periods**parameter of Streamline which is given by the user.

For example, if the data aggregation period is one month (monthly data), **Lead time** is 30 days, **Order cycle** is 1 month, and **Safety stock periods** = 2, then **Safety stock** will be calculated as summed demand of the **February** and **March** (see figure below). The number of the periods `n`

can be also given as a fractional number.

- The maximum from two options above.

Distribution center’s safety stock (**DC safety stock**) can be computed using the same three approaches as the **Safety stock**. The difference is only in the formula (1):

, (2)

,

where:

`m`

is the number of locations.

`α`

is determined by the given**DC service level**unambiguously.

`t`

is the**DC Order cycle**value if the*periodic strategy*is used, or the**DC lead time**value in the case of the*min/max replenishment strategy*. The**DC order cycle**and**DC lead time**values are converted to the data aggregation periods before the calculation.

Suppose `T`

is the number of data aggregation periods in future for which the **Safety stock** is calculated.

If `T ≤ 1`

, then the **Safety stock** is an estimation the following log-normal distribution:

, (3)

where:

`Φ`

- the quantile of standard normal distribution;^{-1}(·)

- SL - a given
**Service level**;

- - the deviation estimation of the log-normal distribution expressed in orders of magnitude. It is the
**Deviation**parameter of intermettent model;

- - the median estimation of the log-normal distribution. It is the
**Median**parameter of intermittent model.

You can also adjust the **Deviation** and **Median** parameters manually in the Model tab.

If `T > 1`

, then the **Safety stock** is calculated in three steps:

1. Find the estimations and .

2. Correct the estimations in the following way:

,

,

where:

`P`

- the_{t}**Transaction probability**;`Var`

- the variance estimation of Binomial distribution._{B(T - 1)}

3. Calculate the **Safety stock** using the formula (3) with the corrected estimations.

When `T`

is fractional, there is no binomial distribution, but a formula for variance exists.

After **Safety stock** or **DC safety stock** has been calculated, Streamline refines it with one of the following ways:

`Safety stock = MAX(Display qty, Safety stock)`

(defualt)`Safety stock = Display qty + Safety stock`

If **Display qty** is not imported, it equals to zero.
You can switch between the ways in the project settings.

If you check the **Safety stock debt** option in the **Show columns** group of the distribution center settings, the **Distribution center** tab additionally shows the **Safety stock debt** section containing three columns: **Received**, **Accumulated**, and **Passed** (see figures below).

**Received**column indicates the total of the safety stock debts passed from the locations at the lower echelon. The formula for the DC**Received debt**is:

,

where:

`N`

– the number of locations at the lower echelon;`Passed debt_i`

– safety stock debt passed from`i`

-th location.

**Accumulated**safety stock debt besides the*Received debt*includes the forecasted demand of all locations at the lower echelon during the**DC lead time**that current**DC on hand**can't cover. However,**Accumulated**safety stock debt can't exceed the total of locations' safety stocks. The formula for the**Accumulated**debt is the following:

`Accumulated debt = MIN[MAX{0, Forecasted consumption - `

,
**DC On hand**} + Received debt, Max SS debt]

,

,

where:

`Demand`

– the_{i}(DC lead time)`i`

-th location forecasted demand during**DC lead time**;

`N`

– the number of locations at the lower echelon;

`Safety stock`

– the_{i}**Safety stock**for`i`

-th location.

**Passed**column shows DC safety stock debt passed to an upper echelon. Since DC can't supply another DC, this column is empty.

You can view the locations’ safety stock debts in the **Inventory planning** tab by the column **Passed** of the **Safety stock debt** section if you check the **Safety stock debt** option in the report setting (see figures below).

**Inventory planning** tab is for planning your inventory at the lower echelon, thus, it shows replenishment plan for locations which are supplied by DCs. Since this is the lower echelon, the columns **Received** and **Accumulated** are empty (see figure above).

The **Passed** column indicates the location's safety stock debt passed to the upper echelon. It is the quantity that is required to restock in order to maintain the location's **Safety stock** at the recommended level. It arises when the location's **Safety stock** is consumed due to unpredictable demand fluctuations. If no constraints (**Min lot**, **Max lot**, and **Rounding**) are applied, the formula for the **Passed debt** is:

`Passed debt = MAX( 0, `

**Safety stock** - **On hand** )

As you see, **Passed debt** can't exceed the location's **Safety stock** value. This upper bound is referred to the Debt passed to upper echelon (max) in the **Explain inventory calculation** dialog. Of course, if **Min lot** or **Rounding** constraint is greater than **Safety stock**, then **Passed debt** is increased to be equal to this value.

If a distribution center incorporates a selling location, the safety stock of the incorporated location is calculated in the same way as for the other locations. In this case, the **DC safety stock** column of the **Distribution center** tab shows the sum of the incorporated location's safety stock and DC safety stock.

Calculation methods for the **Safety stock** and **DC safety stock** are configured separately in Streamline.

To set up a calculation method for the **Safety stock**:

- Go to the menu
**File**>**Settings**>**Inventory**tab >**Safety stock**section (see figure below). - Select:
- the first option, to calculate
**Safety stock**using the formula (1); - the second option, to determine
**Safety stock**as the demand sum of a given number of the future periods; - both options, to compute
**Safety stock**as the maximum from two options above.

To set up a calculation method for the **DC safety stock**:

- Go to the menu
**File**>**Settings**>**Distribution center**tab >**Safety stock**section (see figure below). - Select:
- the first option, if you need to calculate
**DC Safety stock**using the formula (2); - the second option, to determine
**DC Safety stock**as the sum of demand of a given number of the future periods; - both options, to compute
**DC Safety stock**as the maximum from two options above.

As we mentioned, the **Safety stock** and **DC safety stock** are calculated based on the given **Service level** and **Safety stock periods** parameters. There are several ways to set these in Streamline. To learn more about them, refer to the Replenishment parameters configuration methods.

Next: Understanding Purchase Plan and Projected Inventory Levels

safety-stock-calculation.txt · Last modified: 2019/07/17 08:45 by admin