Buffer Bonanza: Evaluating Methods of Determining Safety Stock on Raw Materials
(2025) MIOM05 20251Department of Mechanical Engineering Sciences
Production Management
- Abstract
- Inventory management involves balancing conflicting priorities across production, purchasing, and stock control. Uncertainties in demand and lead times make it difficult to maintain optimal inventory levels, leading to the use of safety stocks. Its effectiveness depends on the chosen calculation method. This thesis, in collaboration with Company X, explores how different methods of determining safety stocks of raw materials affect the performance of a case company.
This thesis aims to support Company X in enhancing its safety stock optimisation. It examines and compares existing industry practices with methods from inventory management literature through a simulation study at a manufacturing company, evaluating their practical... (More) - Inventory management involves balancing conflicting priorities across production, purchasing, and stock control. Uncertainties in demand and lead times make it difficult to maintain optimal inventory levels, leading to the use of safety stocks. Its effectiveness depends on the chosen calculation method. This thesis, in collaboration with Company X, explores how different methods of determining safety stocks of raw materials affect the performance of a case company.
This thesis aims to support Company X in enhancing its safety stock optimisation. It examines and compares existing industry practices with methods from inventory management literature through a simulation study at a manufacturing company, evaluating their practical applicability.
The methodology used in this master thesis consists of two main components. First, an exploratory research strategy was applied to gain a deeper understanding of how safety stock is managed at Company X. This included conducting semi-structured interviews with employees, reviewing internal documentation, and performing a structured literature review to establish a theoretical foundation. Second, a simplified simulation study based on internal training data from Company X was used to develop and test a simulation model. The model was designed to evaluate and compare the performance of different safety stock methods and policies under varying demand and supply conditions.
The results of this thesis emphasize the need to tailor safety stock calculations to the specific characteristics of the inventory system – such as the review system and what service level measurement is used. A
mismatch between target and achieved service levels in a periodic review setting highlights limitations in applying methods originally designed for continuous review. Moreover, excluding negative safety stock values reduces flexibility and can prevent meeting service level targets in continuous systems. However, the simulation study concluded that none of the evaluated methods for determining safety stock managed to consistently match the target service level when considering a periodic review system. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9199486
- author
- Wramell Huitema, Adam LU and Synning, William LU
- supervisor
- organization
- course
- MIOM05 20251
- year
- 2025
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Safety stocks Raw materials Lead time uncertainty Supply chain management
- other publication id
- 25/5316
- language
- English
- id
- 9199486
- date added to LUP
- 2025-06-17 16:45:25
- date last changed
- 2025-06-17 16:45:25
@misc{9199486,
abstract = {{Inventory management involves balancing conflicting priorities across production, purchasing, and stock control. Uncertainties in demand and lead times make it difficult to maintain optimal inventory levels, leading to the use of safety stocks. Its effectiveness depends on the chosen calculation method. This thesis, in collaboration with Company X, explores how different methods of determining safety stocks of raw materials affect the performance of a case company.
This thesis aims to support Company X in enhancing its safety stock optimisation. It examines and compares existing industry practices with methods from inventory management literature through a simulation study at a manufacturing company, evaluating their practical applicability.
The methodology used in this master thesis consists of two main components. First, an exploratory research strategy was applied to gain a deeper understanding of how safety stock is managed at Company X. This included conducting semi-structured interviews with employees, reviewing internal documentation, and performing a structured literature review to establish a theoretical foundation. Second, a simplified simulation study based on internal training data from Company X was used to develop and test a simulation model. The model was designed to evaluate and compare the performance of different safety stock methods and policies under varying demand and supply conditions.
The results of this thesis emphasize the need to tailor safety stock calculations to the specific characteristics of the inventory system – such as the review system and what service level measurement is used. A
mismatch between target and achieved service levels in a periodic review setting highlights limitations in applying methods originally designed for continuous review. Moreover, excluding negative safety stock values reduces flexibility and can prevent meeting service level targets in continuous systems. However, the simulation study concluded that none of the evaluated methods for determining safety stock managed to consistently match the target service level when considering a periodic review system.}},
author = {{Wramell Huitema, Adam and Synning, William}},
language = {{eng}},
note = {{Student Paper}},
title = {{Buffer Bonanza: Evaluating Methods of Determining Safety Stock on Raw Materials}},
year = {{2025}},
}