The interchangeability of safety stocks and safety lead time
Authors: Chang C.Alec 
Published: October 2002

Due to the uncertainty in estimating both the demand for end products and the supply of components from lower levels, buffering techniques should be included before the loading of a material requirement planning (MRP) system. Safety stocks and safety lead time are two techniques of providing buffering for loading. There have been many studies made concerning the determination of the amount of safety stocks and safety lead time. Some guidelines for choosing between safety stocks and safety lead time for dealing with uncertainty in both demand and supply also have been established. Although these two different methods have been used successfully, it has not been documented that using these two methods in a given situation will yield essentially the same results; that is, the interchangeability of these two buffering techniques has not been explored quantitatively.

Since the net influence of safety stocks and safety lead time and their quantitative interchangeability are of major interest, an analytical model is proposed for this study. The lead‐time offset procedure for components loading are represented by a matrix model that is based on a lot‐for‐lot lot‐sizing technique. This lead‐time offset matrix model is the product of the precedence matrix and the fixed‐duration matrix. The precedence matrix is formed according to the total requirement factor matrix and the duration matrix is formed by each component process time. Thus, the lead‐time offset matrix will generate the starting period of each component.

When the lead‐time offset procedure is modeled, the net influence of buffering quantity can be analyzed. The planned safety stock that is normally used to accommodate unexpected demand, shortage in supply, and defects from the operation at each process can be combined with demand to form the master production schedule. The revised lead time due to the integration of the safety stocks can be calculated through the lead‐time offset model. The safety lead time may extend the component process time as well as overall production lead time if the designated safety lead time is longer than the available slack time in a fixed lead‐time loading system.

When the proposed lead‐time offset model is further examined, it is found that planned safety stocks at the higher level can buffer the fluctuations of lower level components quantity as well as the fluctuations of same level components quantity. Safety stocks can also buffer shortages that are caused by the delay of raw material and manufacturing processes. Thus, safety stocks can be used to buffer unexpected delay time up to certain limits. A planned safety lead time at higher level component process can buffer the fluctuations of lower level components process time, as well as the same level component process time. The safety lead time can be used to produce additional products to meet unexpected excessive demand up to certain limits under the following conditions: 1. The excessive demand is known before the actual processing of the components in the lowest level. 2. The raw material at the lowest level is available.

Although safety stocks and safety lead time are interchangeable in terms of the ability to buffer variations in quantity, the conditions for safety lead time are seldom met in actual practices. Thus, the slack time in a fixed lead‐time loading system cannot be considered as an effective measure to substitute safety stocks. However, all or part of the delay in manufacturing processes or the supply from the lower level components can be buffered by the safety stock and the MPS will still be met. From this study, it is obvious that the slack time can be reduced when safety stocks are planned for an MRP system. The reduction of fixed lead‐time duration will be beneficial to the overall planning and scheduling in MRP systems.