Hi Sachin,

Use the formula SKU=WSV×Ratio

Later, do adjustments with CCF=SKU×CCF(update algorithm repeatedly)

calculate the CCF factor to account for variability and uncertainty.

Then calculate monthly SKU=Adjusted Safety Stock with CCF×Monthly Percentage.

Hope this will help you.

Regards,

IH

To calculate Monthly Safety Stock while considering SKU Contribution Ratios, CCF (Cumulative Contribution Factor) Factors, and Monthly Stock Reduction Percentages, you need to account for several important parameters. Here's a structured approach to calculate it:

Key Terms:

Formula:

The Safety Stock can be calculated using the following steps:

1. Calculate Base Safety Stock per SKU:

The base safety stock is usually derived from factors such as forecasted demand variability, lead time, and desired service level.

The basic formula for safety stock is:

Safety Stock=Z×σd×L\text{Safety Stock} = Z \times \sigma_d \times \sqrt{L}Safety Stock=Z×σd​×L​

Where:

• ZZZ = Z-score corresponding to the desired service level (e.g., 1.96 for 95% service level).
• σd\sigma_dσd​ = Standard deviation of demand (you can use historical demand data for this).
• LLL = Lead time in months.

2. Adjust for SKU Contribution Ratios:

The contribution ratio for each SKU allows you to scale the safety stock calculation according to the relative importance or volume contribution of each SKU.

For a given SKU iii:

Adjusted Safety Stock for SKU i=Base Safety Stock×SKU Contribution Ratioi\text{Adjusted Safety Stock for SKU } i = \text{Base Safety Stock} \times \text{SKU Contribution Ratio}_iAdjusted Safety Stock for SKU i=Base Safety Stock×SKU Contribution Ratioi​

3. Incorporate CCF Factors:

The CCF factor adjusts safety stock based on a cumulative contribution, such as demand patterns or priority in the supply chain. If you have a list of CCF values for each SKU, you multiply the adjusted safety stock by the appropriate CCF factor.

For SKU iii, with CCF factor CCFiCCF_iCCFi​:

Final Safety Stock for SKU i=Adjusted Safety Stock for SKU i×CCFi\text{Final Safety Stock for SKU } i = \text{Adjusted Safety Stock for SKU } i \times \text{CCF}_iFinal Safety Stock for SKU i=Adjusted Safety Stock for SKU i×CCFi​

4. Account for Monthly Stock Reduction Percentage:

Since your stock is reduced monthly due to sales, stock turnover, or other factors, you need to factor in the monthly stock reduction percentage.

Let’s assume you have a reduction percentage RiR_iRi​ for SKU iii (expressed as a percentage, e.g., 10% = 0.1). The final safety stock after applying the reduction would be:

Final Adjusted Safety Stock for SKU i=Final Safety Stock for SKU i×(1−Ri)\text{Final Adjusted Safety Stock for SKU } i = \text{Final Safety Stock for SKU } i \times (1 - R_i)Final Adjusted Safety Stock for SKU i=Final Safety Stock for SKU i×(1−Ri​)

5. Summing Across SKUs:

To get the total monthly safety stock for the entire portfolio, you sum the final safety stock values for all SKUs:

Total Monthly Safety Stock=∑i=1nFinal Adjusted Safety Stock for SKU i\text{Total Monthly Safety Stock} = \sum_{i=1}^{n} \text{Final Adjusted Safety Stock for SKU } iTotal Monthly Safety Stock=i=1∑n​Final Adjusted Safety Stock for SKU i

Example Calculation:

Suppose you have three SKUs (A, B, and C) with the following data:

• SKU A: Contribution Ratio = 0.4, CCF Factor = 1.2, Monthly Stock Reduction = 0.05 (5%)
• SKU B: Contribution Ratio = 0.3, CCF Factor = 1.5, Monthly Stock Reduction = 0.08 (8%)
• SKU C: Contribution Ratio = 0.3, CCF Factor = 1.0, Monthly Stock Reduction = 0.03 (3%)

Base safety stock (assuming it’s calculated as 100 units for each SKU, for simplicity) would be adjusted as follows:

Similarly, calculate for SKU B and C.

Finally, sum the final adjusted safety stocks for all SKUs to get the Total Monthly Safety Stock.