What is the safety reserve in terms of production? How is it calculated and what is the variance for it?

Hi Sarah, 

It's a difficult one to answer without knowing your circumstances. Safety stocks are there to cover deficiencies in the value stream. 

You have to have a quantity of safety stock raw material because you consume it quicker than you can have it delivered. You have to have a quantity of safety stock finished customer goods because you can't produce it quick enough for call off schedules. 

The quantity depends on the performance of the business, there is no set number or variance. Ideally there should not be a need for safety stock because it is idle money, it increases working capital and erodes profits. 

Safety stock should be transient to cover a shortfall and not be permanent. 

Work in progress should be treated in a similar fashion, with buffers used to even out the flow of the processes in the value stream until you can balance each process.  You can then work on implementing single piece flow and eliminating work in progress all together. 

The essence of this reply is to work on the root cause of the manufacturing problems and not fix the symptoms with costly inventory. 

for the sake of "safety reserves" we have to keep a strong  check on the out flow of our products. Enough material ought to be there in stock to counter  any imbalance in out flow and should mitigate its adverse effects.

in my 2 years of experience i can say that it can be calculated by the amount of daily production and the requirement in the market. if you have less requirement in the market and you keep on wasting handsome amount of time and money on it. it will certainly lead to the disaster