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Optimizing Safety Stock

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Executive Summary

Optimizing Safety Stock levels by calculating the magical balance of minimal inventory while meeting variable customer demand is sometimes described as the Holy Grail of inventory management. Many companies look at their own demand fluctuations and assume that there is not enough consistency to predict future variability. They then fall back on the trial and error best guess weeks supply method or the over simplified 1/2 lead time usage method to manage their safety stock. Unfortunately, these methods prove to be less than effective in determining optimal inventory levels for many operations.

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