BAMG 30700 Midterm: Process Analytics Study Guide Part 10
18 May 2018
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Process Analytics Study Guide
• Safety Stock:
o No specific formula for how much safety stock to have on hand because you
cannot predict when a disaster is going to occur
o Typical considerations include how much is needed on hand to operate the
factory at a MINIMAL level of profit for a week or a month
o Sometimes expressed as a percentage of cycle or pipeline inventory
o Bottom Line = enough safety stock is needed to ensure that the company can
continue as a going concern but not too much that the expense of safety stock
impairs the company financials
o Most difficult inventory to manage with RESPONSIVE SUPPLY CHAINS
o Car engine plant = typically has about 2-3 days of safety stock on hand
• Anticipation Inventory:
o Similar to Safety Stock in that it is used for inventory changes driven by seasonal
changes, sporting events, and holidays
• What Should Be Ordered:
o Order the most important items first, followed by lower priority items that are
easy to acquire
▪ most important items are more valuable from a cost perspective
▪ Value = Annual Demand for Unit * Item Cost per Unit
o ABC Analysis:
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