Safety Stock Planning

Purpose
Safety stock planning in Supply Network Planning (SNP) allows you to attain a specific service level by creating
safety stock for all intermediate and finished products at various locations throughout the entire supply chain.
Safety stock is used to safeguard stock in the supply chain against uncertain influencing factors. Supply chain
planning is susceptible to a number of influencing factors that cannot be predicted with certainty in advance. For
example, when forecasting customer demand, the quantity required is usually uncertain. In addition to this,
disruptions in production or transportation time fluctuations lead to discrepancies in planned replenishment lead
times. To safeguard yourself against such uncertainties when planning, you can take one or more of the following
measures:
Overestimate customer demand
Underestimate production output quantity
Overestimate procurement lead times
Use safety stock
While overestimating customer demand is a Demand Planning tool for safeguarding against forecasting errors, you
can model an underestimation of production output quantity and an overestimation of procurement lead times using
production process models (PPMs) and transportation lanes.
You have to address the following questions as part of safety stock planning:
1. At which locations within the supply chain do you want to have safety stock?
2. How much safety stock do you want to hold at a particular location?
Example

With the aid of this simple supply chain, it immediately becomes clear that the question about where to hold safety
stock is a highly complex problem due to the variety of possible combinations (calculated as 2 to the power n in

this example, there are already 64 possibilities). Due to this wide range of possibilities, it is advisable to make use of
the planners experience and allow the planner to simulate selected planning scenarios.

Safety Stock Methods

Since safety stock is usually necessary for products at different locations, you can select a safety stock method in the
product master for every location product. The different methods are split into standard and extended methods
here.

Standard Methods
The standard methods differ from one another in their observance of time. For these methods, the planner enters the
safety stock information directly into the system:
Not time-based (static)

Time-based (dynamic)

Safety Stock

SB

MB

Safety days' supply

SZ

MZ

Max {Safety stock, safety days supply}

SM

MM

For example, you might want to define safety stock directly as a safety days supply or as the maximum of the safety
stock and safety days supply. With the maximum option, safety stock can be adjusted dynamically to meet the
demand flow, and not fall below the defined safety stock. You specify safety stock that is not time-based on theLot
Size tab page in the product master, but define safety stock that is time-based in interactive Supply Network
Planning.
Note that for safety stock method MM, the SNP optimizer only considers independent requirements as well as
dependent and distributed demands caused by fixed orders, since these demands and the demand locations are
already known before the optimization run.

Extended Methods
While the standard methods are based exclusively on the planners experience, the proposed safety stock levels of
the extended methods are determined by the system based on scientific safety stock planning algorithms. The
starting point is a service level that you want to attain through observance of the calculated safety stock. You can
define this service level in the Lot Size tab page in the product master. It can be interpreted as follows (based on the
business process):
Shortfall-event-oriented (alpha service level): The service level in percentage means that no shortfall is expected
in x percent of the buckets within the planning period.
Shortfall-quantity-oriented (beta service level): The service level in percentage means that x percent of the
expected total customer demand can be fulfilled within the planning period.
Example

10

Expected demand

100

100

100

100

100

100

100

100

100

100

Shortfall quantity

10

10

Shortfall event

Bucket

Total of shortfall quantities: 20 -> beta service level: 1 (20 / 1000) = 98%
Total of shortfall events: 2 -> alpha service level: 1 (2 / 10) = 80%

To decide which service level to use, answer this question: Are the costs for subsequently delivering a shortfall
quantity dependent on the shortfall quantity or not? If these costs are not dependent on the shortfall quantity (fixed
costs), we recommend that you use an alpha service level; if they are dependent on the shortfall quantity (variable
costs), a beta service level would be more appropriate.
The stockholding method used by SNP when planning demands has a major influence on the algorithm for
calculating safety stock. The following two different stockholding methods exist:
Reorder cycle method: With this method, the system makes a purchase order decision on a time basis, which
means that procurement can only be triggered for all t buckets.
Reorder point method: With this method, the system makes a purchase order decision on the basis of stock,
which means that procurement can be triggered if stocks fall below a certain level s (the reorder point).
Stockholding Method

The two service levels result in these four model-supported safety stock methods:

Reorder cycle method

Reorder point method

Alpha service level

AT

AS

Beta service level

BT

BS

The prerequisite for using this method is that shortfall quantities are delivered subsequently (back order case as
opposed to lost sales case). If this prerequisite is met, the system can calculate the safety stock on any step of the
supply chain and for each bucket in the planning period.

Forecast Error Determination

When calculating the safety stock, the system can take into account a forecast error in both demand and
procurement. The following key figures form the starting point for the forecast error calculations:
Demand

Procurement

Planned demand quantity key figure

Planned replenishment lead time key figure

Realized demand quantity key figure

Realized replenishment lead time key figure

The system calculates the forecast error by determining the planned actual deviation of the relevant key figures. The
standard deviation of the planned actual deviations is interpreted as the forecast error. A forecast error is thus
determined from the historical data and the future forecast is based on this forecast error. To more accurately support
the future forecast, it is a good idea to interpret this forecast error as a relative forecast error, so that instead of
keeping the forecast error itself, you keep the relationship between forecast error and forecast (variation coefficient).
This is clarified in the following example:
Example
Mean value of the planned demand quantity: 100
Standard deviation of the planned actual deviations: 10

Demand Forecast

100

1000

1000

Forecast error if the standard deviation is constant

10

10

10

10

10

Forecast error if the variation coefficient is constant

10

100

100

10

10

Bucket

100 100

If the forecast error is not dependent on the forecast, an incremental forecast unexpectedly causes the safety stock to
fall because the forecast error decreases in relation to the forecast. For this reason, it is more advisable to use relative
forecast errors in a dynamic environment than constant forecast errors.
If there is a forecast error in procurement (a replenishment lead time forecast error), the demand forecast error is
adjusted based on the assumption that the two forecast errors are independent of each other.
You can also enter the demand forecast error and replenishment lead time forecast error directly in the location
product master. We recommend that you do this in the following circumstances:
If there is no historical data (because the product is new for instance)
If the amount of historical data is so small that it is impossible to calculate a statistically relevant forecast error
If the forecast error can be considered constant
In the safety stock planning profile, you can specify if the system is to calculate the forecast error during extended
safety stock planning from the historical data or from the location product master data.

Modifying the Parameters

Multilevel safety stock planning is a very complex issue for any supply chain structure. It is therefore a good idea to
implement high-performance heuristics. Algorithms are thus the focus of attention for single-level, non-time-based
safety stock planning that is then incorporated within a multilevel, time-based supply chain planning by adjusting
the input parameters.
This makes it necessary for the system to adjust the forecast and forecast error for demand and procurement.
For demand, the system first determines all the location products supplied by the safety stock location product. It
then projects all the forecasts and forecast errors onto the safety stock location product (considering all the quantity
and time relationships) to calculate the safety stock.
For procurement, the system first determines all the location products that are to supply the safety stock location
product. It will do this until it finds a safety stock location product, or until it finds external supply for the supply
chain. It then determines the critical supply path by calculating the maximum replenishment lead time. All forecasts
and forecast errors along this critical path are then projected onto the safety stock location product for safety stock
planning.

Standard Safety Stock Planning

Use
You use standard safety stock planning in Supply Network Planning (SNP) to build up safety stock for location
products according to values that match past experience. You can define these values as time-independent in the
location product master data or time-dependent in interactive SNP planning. When doing so, you can choose from
six different safety stock methods with which you define the safety stock directly using the safety days supply or as
a maximum of safety stock and safety days supply.
The values you have defined are then considered during heuristic or optimization-based SNP planning.

Prerequisites
You have defined the specific master data for standard safety stock planning. For more information see
Master Data Setup for Safety Stock Planning.
If you wish to use safety stock methods MZ, MB, or MM, you have to use standard SNP planning area
9ASNP05 and standard planning book 9ASNP_SSP (or a planning area and planning book based on these) that
contain the following key figures: 9ASAFETY Safety Stock (Planned) and 9ASVTTY Safety Days
Supply.
Note that for safety stock method MM, the SNP optimizer only considers independent demands as well as
dependent and distributed demands caused by fixed orders, since these demands and the demand locations are
already known before the optimization run.

Activities
The safety stock values you defined are shown in interactive SNP planning and the system considers them during
the SNP planning runs.

See Also
Extended Safety Stock Planning

Extended Safety Stock Planning

Use
Extended safety stock planning in Supply Network Planning (SNP) automatically calculates the safety stock using
data that you specified as mandatory in the system. This includes, for example, a service level that you want to attain
through observance of the calculated safety stock. You also specify the current demand forecast and the historical
data using the demand forecast and the replenishment lead time (RLT) as key figures. The system uses the historical
data to calculate the forecast error for the demand forecast and the RLT.

Prerequisites
You have assessed your supply chain and determined at which stages you want to plan safety stock.

 You have determined the special master data for safety stock planning next to the basic SNP planning master
data (including quota arrangements). This includes, for example, the service level and the safety stock methods
in the location product master data. For more information see
Master Data Setup for Safety Stock Planning.
You have created a safety stock planning profile (SFT planning profile). In this profile you can, for example,
determine how the system calculates the forecast error (from historical or master data), and specify the demand
type (regular or sporadic). For more information, see Safety Stock Planning Profile.

Features
The system considers the following factors when calculating the safety stock:
Demand forecast and demand forecast error
Replenishment lead time (RLT) and RLT forecast error
Service level
Safety stock method
Demand type
The reorder point method that you determined in the location product master data does not influence safety stock
planning.
The system determines these factors as follows:
Demand Forecast Determination
The forecasted demand for a product at a location is the sum of the independent and dependent demands
at the location and all downstream locations. You specify the independent demands in the system as a key
figure for the demand forecast. The system determines the dependent demands using transportation lanes
and production process models (PPM) or production data structures (PDS). The system also takes into
account inbound quota arrangements.
The system determines the demands forecast error from the historical data or location product master data
that you specified as mandatory (settings in SFT planning profile).
Replenishment Lead Time Determination
The RLT for a product at a location is the total time for the in-house production or the external
procurement of a product (including its components). The system determines the RLT using the supply
chain model or from location product master data (settings in SFT planning profile).
If the system determines the RLT using the supply chain model, it adds up the respective production
times, good issue processing times, transportation times, goods receipt processing times, and planned
delivery times. If there are alternative procurement options, the system always considers the option that
takes the longest time. The system does not consider restrictions on capacity size, lot size, or warehouse
stock. Procurement from upstream safety stock is not restricted.
The system determines the RLT forecast error from the historical data or location product master data
that you specified as mandatory (settings in SFT planning profile).
Service Level Determination and Safety Stock Method Determination
The system determines the service level and the safety stock method from the location product master
data (Lot Size tab page). With the safety stock method you determine the combination of service level and
order policy that the system is to consider.
During the reorder cycle methods AT and BT the system interprets the target days supply from the
location product master data as an order cycle.

 During the reorder point method BS the system uses the target days supply from the location product
master data to calculate the purchase order quantity.
During the reorder point methods AS and BS the system accepts a monitoring interval (period of time
between successive reviews of the warehouse stock) from one period.
Demand Type Determination
You can use safety stock planning both for products with regular demand and also for products with
sporadic demand. For the former, the formulas used assume normal distribution, for the latter they use
gamma distribution.
The system determines the demand type from the settings you made in the SFT planning profile. You can
determine whether it is regular or sporadic demand, or whether the system is to automatically determine
the demand type using historical data.

Activities
On the SAP Easy Access screen, choose Advanced Planning and Optimization Supply Network
Planning Planning Safety Stock Planning. On the Safety Stock Planning screen, you then enter the data
described below:

Section

Input data

Planning

In this section you then specify the planning area where the planning objects and key figures are. You can use, for

Data

example, the SNP standard planning area 9ASNP05 (or a planning area based on it) that contains the key figures
9ADFCST, forecasting, and 9ASAFETY, safety stock (planned).
You can also specify the key figure for the demand forecast, based on which the system calculates the safety stock (for
example, 9ADFCST). You can also specify the key figure in which the system saves the safety stock (for example,
9ASAFETY) and the SFT planning profile the system uses.

Object
Selection

In this section you specify the location products for extended safety stock planning. The system plans the safety stock for
those location products for which you have determined an extended safety stock method in the master data.

Historical
Data

In this section you specify the key figures for the demand forecast historical data which the system uses to calculate the
forecast error. You can, however, determine the forecast error in the location product master data yourself.

Application

In this section you specify how the system creates the application log (level of detail, immediate display, length of

Log

storage).

You can display the calculated safety stock as a key figure in interactive Supply Network Planning and, if required,
manually change it or copy it into another planning version. You can also use the calculated safety stock
inProduction Planning & Detailed Scheduling (PP/DS) and Capable-to-Match (CTM).

Master Data Setup for Safety Stock Planning

Purpose
This document describes which specific master data you must define for safety stock planning in Supply Network
Planning (SNP). For more information, see the associated F1 Help.

Process
1. Determine whether you want to use standard or extended safety stock planning.
2. If you use standard safety stock planning, enter the relevant data in the following fields on the Lot Size tab
page in the location product master:
Safety Stock Method Methods SB, SZ, SM for time-independent determination and methods MB, MZ,
MM for time-dependent determination.
Safety Stock - is considered by the system during safety stock methods SB and SM.
Safety Days Supply - Considered by the system during safety stock methods SZ and SM.
3. If you use extended safety stock planning, enter the relevant data in the following fields on the Lot Size tab
page in the location product master:
Safety Stock Method Methods AT, AS, BT and BS.
Service Level (%)
Demand Fcast Err. (%) Can also be calculated by the system using historical data.
RLT Fcast Error (%) Can also be calculated by the system using historical data.
Target Days Supply During safety stock methods AT and BT the system interprets this value as an
order cycle. During safety stock method BS the system uses this value to calculate the purchase order
quantity.
Replen. Lead Time Can also be calculated by the system using historical data.
Min. SFT
Max. SFT