I need your precious advice as I am new to this area.
I am trying implement dynamic safety stock in SAP ERP system. I have checked the ‘Range of Coverage Profile’ option. But the parameters to calculate safety stock in this built around ‘Average daily demand’.
But in actual safety stock formula, there are many factors like, Replenishment Lead-time, Standard deviation of demand, Forecast error, Service level or Service factor, Lead-time deviation (Thankfully we do not have LT deviation but the demand deviation is high for some materials.) etc.
I would like to know how we can consider these factors while building dynamic safety stock.
I have found a formula for Safety stock but do not know how to implement it in SAP.
R = Relationship between forecast accuracy and service level (Service Factor)
W = Delivery time (in days) / Forecast Period (in days)
MAD = Mean absolute deviation (parameter for forecast accuracy)
If replenishment lead time is greater than the forecast period by factor W then:
Safety Stock = R x Sq.rt. W x MAD
Else if the forecast period is greater than the replenishment lead time by factor W then
Safety Stock = R x W x MAD
Thanks and best regards,