The impact of safety stock on schedule instability, cost and service

An experiment was designed to investigate the impact on schedule instability, lot-size costs, and customer service of using safety stock under a wide range of operating conditions. The criterion variables used in this study were schedule instability, lot-size cost error, and customer service level. The experimental results were examined using analysis of variance. The results indicate that increases in safety stock at the MPS level lead to higher customer service, but not necessarily to more stability in the production schedule or to a higher lot-size cost error. In general, the introduction of a small amount of safety stock improved schedule stability (compared to the alternative of no safety stock) and also lowered the cost error measure. However, further increases in the safety stock level often led to increases in schedule instability and always led to a higher cost penalty relative to the ex post measure of optimal cost. The increased nervousness of schedules was observed with a variety of alternative statistics that were used to measure schedule instability over the planning horizon. The results suggest that safety stock should be used with caution if it is introduced for the purpose of stabilizing schedules. In addition, the study identifies alternative strategies that may be effective in dealing with the schedule instability problem. For example, reductions in schedule instability consistently occurred when the expected time between orders was reduced and the forecast errors were low. This suggests that efforts to reduce setup costs and improve forecasting accuracy may be useful alternatives to increasing safety stock in dealing with the schedule instability problem.