Inventory or Stock level

I shared about safety stock already… Ok, a bit more general how about inventory..
How much inventory shall we keep?
Why we need this inventory?
These more …. where shall we keep the inventory, when, who shall keep this?

Let focus on How much and Why (also for Finish Goods/FG only)
A friend said… about 20 days… if too less.. becoming JIT (Just in Trouble)…..
The other friend said, …. We target about 12 days, but currently at 9 days….
The other business maintaining more than 40 days….
How come? Who’s right?

My opinion: Ideal INVENTORY = SAFETY STOCK + CYCLE STOCK

SAFETY STOCK = Securing against fluctuation/uncertainty

CYCLE STOCK, depend on your business… how much time required on production cycle/ replenishment leadtime.

Extreme example:
- Ship building industry, this is make to order… no FG stock required.
- Consumers good…. Need more inventory, ensure available in market pipeline… never allow your customer has any reason to buy competitor product due to stock out at retail selves

So how much inventory shall you keep? Depend on your industry, fluctuation, cycle time, etc…. This is the art, what is the right level…. Which also shown your Supply Chain expertise level… :-)

Safety Stock or convenience stock

It is similar (if not exactly the same) as you do at home. What do you stock at home? Soap, Shampoo, dish soap, softener, nail, paper.
Why you keep that stock? Convenience, right? Easy to grasp

How much would you like to spend ($$$$$....) for this conveniences?
Perhaps an extra USD 100 for your toiletries and consumer goods… no problem..
How if your inventory value USD 10MM, with about 10% working capital rate = USD 1 MM per year = USD 80000 per month…. How if part of this value use for your employee benefit? Hmmmmmm

But… if no stock the risk is very big…. depend on your business nature.
I don’t say, “no stock”, but how much…
If we double our stock…. Will we eliminate 100% risk.??? I dont think so..

So, how should we calculate the risk and ensure we have sufficient stock and risk and "conveniences"….. :-)