How to Calculate Safety Stock for Optimal Inventory Levels
How to Calculate Safety Stock for Optimal Inventory Levels
Inventory management is an important part of running a successful business. A key goal of inventory management is having enough stock to meet customer demand while avoiding excessive inventory buildup. Revenue lost due to stockouts from customers purchasing from competitors and the knock-on effect of reduced supply chain efficiency cannot be underestimated. To help manage your inventory levels correctly managed, it’s vital to calculate safety stock for optimal inventory levels. While common, even desirable, to run low on supply due to increased sales, it is also vitally important to calculate accurate safety stock and reorder cadence to ensure the appropriate amounts of product to keep on hand. In this post we will explore how to calculate safety stock for optimal inventory levels.
What is safety stock?
Safety stock is a buffer of inventory kept on hand as an insurance policy to protect against unexpected disruptions in supply or demand. It is essential because it ensures that the company can always fulfill customer orders, even when there are unforeseen delays in receiving goods or a sudden spike in demand. Safety stock also reduces the likelihood of stockouts, which can lead to a loss of sales and customer dissatisfaction. Stockouts result in $984 billion worth of lost sales worldwide, with North American companies alone losing $144.9 billion, according to a study by IHL Group. In addition to preventing stockouts, having safety stock on hand can help a business stay competitive by allowing them to respond quickly to changes in the market and leverage last-minute sales promotions.
Calculating Safety Stock
It is vital to use an appropriate calculation to determine the optimal inventory levels for your safety stock. This will ensure the business prepares for the right amount of safety stock without overstocking, which can lead to higher holding costs. The first step in calculating safety stock is determining the optimal inventory levels for each product as well as the lead time. Lead time is the period of time between an order being placed and the stock being delivered. This involves estimating the amount of inventory that needs to be on hand to maintain customer service levels. Therefore, you must consider each product's lead time, demand rate, and expected sales volume.
Basic Method to Calculate Safety Stock
To use the most common safety stock formula, you must know the following values:
- Maximum daily usage - This is the maximum number of units sold in a single day
- Maximum lead time - This is the longest amount of time it takes for a vendor to deliver the stock
- Average daily usage - This is the average number of units sold per day
- Average lead time - This is the average time the vendor takes to deliver the stock.
Once you have these values, you can calculate the safety stock by plugging them into the following formula.
Remember that this formula doesn’t consider dramatic fluctuations in lead time or supply chain bottlenecks. Furthermore, it doesn’t account for customer demand fluctuations or seasonal changes. If you need a more accurate safety stock calculation considering these variables, please check out the following methods.
- Heizer and Render’s Formula - this method is best if you have significantly varied lead times.
- Greasley’s Formula - this method takes into account both lead time and demand fluctuations.
For an extensive deep dive into more techniques to calculate safety stock for optimal inventory levels, check out this post by ABC Supply Chain. They even offer an excel based safety stock calculator.
Safety stock is an integral part of inventory management and ensures optimal inventory levels when regularly monitored. By calculating safety stock levels for each product, you can ensure that your inventory management is effective and that customer demand is met without excessive inventory buildup. Whether you choose the basic method or a more complex formula, having adequate safety stock is good for business.
How working with a 3PL can improve safety stock management.
Working with a 3PL can help with safety stock by allowing the 3PL to manage the inventory levels and identify potential future needs. 3PLs are experts in inventory management and can ensure businesses always have the right amount of stock on hand. A quality 3PL can also help with quality control, supply chain management, and flexible storage options. Furthermore, they can provide real-time inventory tracking and reporting so businesses can monitor their safety stock levels and make adjustments as necessary.
If your business needs a partner to manage inventory, improve safety stock levels, or streamline your supply chain. Get in touch with Falcon Fulfillment. We have the experience and connections to help your business maintain the right amount of product at all times. Talk to one of our friendly agents today to find out more.
Case Study: Why Sustainable Eucalyptus Bedding Brand Sheets & Giggles Chose Falcon Fulfillment
All images courtesy of Sheets and Giggles
Sheets & Giggles is an environmentally-friendly bedding company producing luxury sheets and other bedding items using 100% sustainably grown eucalyptus lyocell. This case study touches on who S&G are, why they partnered with Falcon Fulfillment and their experience in doing so.
Sheets & Giggles’ history began with a movie. A movie about an international arms dealer and exploiting government initiatives – War Dogs, to be specific. Throughout Jonah Hill’s beloved film there’s a single scene that sets the stage for today’s well-known sustainable bedding brand.
“I got so frustrated with Miles Teller’s character when he had to burn all those bedsheets out of the back of a pickup truck because he couldn’t sell them to retirement communities. I paused the movie and wrote a business plan for a bedsheets company that night.”
Colin McIntosh, Founder of Sheets and Giggles
From that moment forward the legacy of a sustainable bedding company had begun.
Fast forward to September 2017 and Colin voluntarily leaves his position with Revolar – a company working to actively reduce and stop the sexual assault and violence against young women. During his employment, the company sent over 60,000 alerts to emergency officials and ultimately took part in saving the lives and livelihood of young women around the world.
Key Metrics:
- Sheets and Giggles hit $9 million in revenue for 2021, surpassing the first 1 million they hit in 2020, only 3 years after shipping their very first order.
- 100% plastic-free packaging with no wasteful package filler.
- A partnership with One Tree Planted, where 2 eucalyptus trees are planted for every 1 that is harvested for sheets.
- A donation program that rewards buyers with 10% off for donating old sheets, ultimately reducing the 10 million tons of textiles that end up in landfills each year.
On October 19th, 2017, three weeks after leaving Revolar, Colin launched Sheets and Giggles. Over the course of a few months, Colin worked on the company logo, typography, and other small details that a company needs to have a strong brand. Colin and his intern started making headway on Sheets & Giggles in January of 2018.
But, Why Bedding?
“So first and foremost, I’m a big sustainability person. And my last company was literally trying to fight sexual assault and violence on college campuses. It was like a very mission-driven company. But I didn’t want to do something as heavy as that. I mean three years of that and, while I could have gone on longer if we had been more successful, it starts to wear on you with the stories and the things you hear. I did want something a little lighter, but I still wanted something mission-driven. And so I knew I wanted to do something with sustainability.”
– Colin McIntosh, Founder of Sheets and Giggles
As Colin thought of the millions of ways he could get into the ecommerce industry, and the few ways he could do it successfully – sustainable bedding came to mind.
“I wanted a physical product that was sustainably made in a massive commodities market that had zero brand differentiation or loyalty. I thought, ‘does bedding fit my criteria?’ and it did – perfectly. It’s a massive commodities market, it’s highly fragmented, there’s no loyalty or brand differentiation, there weren’t any good sustainable options. Everything was mostly physical retail so you could really make some noise online.”
– Colin McIntosh, Founder of Sheets and Giggles
After searching for the best fabric to create his bedding empire, lyocell came out on top as the most sustainable material. With the use of eucalyptus lyocell, S&G products created a near-zero environmental impact, with up to:
- 96% less water used than cotton alternatives
- 30% less energy used than cotton alternatives
- 0% of pesticides or insecticides used. (Cotton uses 16% of the world’s insecticides)
Colin launched S&G’s first-ever crowdfunding campaign on Indiegogo in May 2018. Within a month, his campaign raised $284,000, making it the largest bedding campaign in Indiegogo history and the second-largest crowdfunding campaign in the bedding sector!
The Rise of Sustainable Sleeping
During their early years, Sheets & Giggles rented warehouse space from a local company in Colorado so that they could start processing and shipping orders. Between 3 people and 1 part-time warehouse employee, the group worked every weekday evening and every Saturday to get orders to their customers.
When the volume of orders increased and showed no sign of stopping, the crew realized that what they were doing was not efficient. They needed to up their fulfillment game so they could get out of the warehouse. So what did they do?
This marks the pivotal moment S&G decided to partner with a 3PL.
“We chose a 3PL based on recommendation and networking. We went with one of those giant 3PLs with “ship” at the first part of their name. What we found was: we got lost. They were unresponsive. I couldn’t get a person on the phone, only voicemails. I couldn’t get answers [within a day]. I couldn’t get the paperwork I needed. They would lose goods and I had to make an appointment to do anything.”
Mike Pearl, Director of Product and Operations
Sheets and Giggles quickly realized their first choice in a 3PL partnership wasn’t the right fit, so it was up to Mike to find the right one.
“I started out with about 12 different 3PLs that were either recommended to me or I found myself, and I created a spreadsheet. I filled it up with questions I intended to ask [each 3PL] and it took me about 4 months to narrow it down to two – and I picked Falcon Fulfillment out of those two.”
Mike Pearl, Director of Product and Operations
So, why did S&G ultimately decide to go with Falcon Fulfillment?
- They wanted a 3PL that would care about their business.
- They wanted to be able to call and get a responsive answer.
- They wanted a dedicated account manager that would assist them personally.
“I was looking for a medium-sized 3PL that we could be important too. I was not important to the huge 3PL because I wasn’t that big compared to their largest customers. I knew what size I wanted my 3PL to be and Falcon fit that role. I was able to get the personal touch that I had been seeking, in terms of being able to access actual human beings in the course of a workday, get call-backs and have people answer the phone. I could call and ask someone to run over to the shelves and check [something] for me and they would. I was really looking for that kind of personal touch and responsiveness without losing any capabilities – and the prices were good.”
Mike Pearl, Director of Product and Operations
Sheets and Falcons
After their first year with Falcon Fulfillment, we take a look back at how their 3PL partnership choice has paid off.
“I will say that every time we come up with something new that we want to try, Falcon is always willing to try it. Sometimes it’s required that the Falcon IT team do integrations or something new in software, some of it has required that [Falcon’s Director of Operations] sit down with teams, and we even taught Falcon how to do a Good Morning America sale, which, on the last one we did, we shipped and sold over $600,000 in a day. I commend Kipp (the Vice President of Falcon Fulfillment) and his team because they’re willing to learn along with their customers.”
Mike Pearl, Director of Product and Operations
Aside from the many members who aid S&G in their 3PL journey, Mike continues with praise for some of those S&G works with closely:
“I give Lori (Director of Operations) a ton of credit because she goes above and beyond to find answers for you. She knows her stuff and she will go get the information. She’s timely, very transparent, and honest, and I appreciate that. All in all, it’s just kind of that all-hands-on-deck type of attitude.”
“My two account managers are fabulous. It’s not uncommon for them to be out pulling orders. I asked for a daily report and my Account Manager instituted a daily report, which gets sent to me everyday. They’re willing to do those things that aren’t necessarily part of the ‘normal menu’ from Falcon, but when we express a desire to get that service – they institute it.”
Mike Pearl, Director of Product and Operations
It has been one year since Sheets and Giggles partnered with Falcon Fulfillment. Their business has continued to scale and evolve. Here at Falcon we enjoy working with S&G because not only are their witty jokes our favorite, but they’re also professional, friendly, and most of all, just darn good people.
We asked Mike what S&G has enjoyed most about our first year together and this is what he said:
“You know, I really go back to the personal touch and the ability to change on the fly. With Falcon, if an order has not gone on the FedEx or UPS truck yet, I can change it – they’re willing to do that. They’re willing to go out and find it and make the changes that I’m requesting. If a customer calls and says they ordered the wrong size, color, etc Falcon has the ability to change those things. In addition to order changes, they allow us to make changes to our freight services. They’ve allowed us to do what’s best economically for S&G, sometimes using our own freight services instead of theirs – which is a big deal in the 3PL business.”
Mike Pearl, Director of Product and Operations
Overcoming Sheet Together
In the beginning, there were challenges that S&G faced. Falcon Fulfillment was able to help with their long, faulty receiving process.
“The receiving aspect was huge. In 2 years, I don’t think I ever got the receiving checked incorrectly at the other 3PL. I had to make an appointment, lots of times I couldn’t get my container in the door for 2 weeks, and my inventory was always wrong. I have not had those problems with Falcon, and believe me, we’ve dumped some “sheety” shipments on them. Shipping-wise, things backed up because of the holiday. Yesterday, I looked and we had received 182 orders. Falcon shipped out 642 orders. So, they’re catching up in a hurry with the backlog of orders. Order’s don’t sit around at Falcon!”
Colin McIntosh, Founder of Sheets and Giggles
Exciting Things Are Coming in 2022 For Sheets & Giggles
With such a successful two years, we can only expect great things from S&G moving forward. They’ve been able to find success with their signature products because of their consistent quality and sustainable practices.
As much as we would love to include the juicy, info-filled insights Mike provided us, it’s only appropriate for us to say that 2022 is the “year of new products”. It’s safe to say that Sheets and Giggles will be introducing never-before-seen inventory that customers are likely to fall in love with.
Learn more
Boost your e-commerce business by finding a better order fulfillment partner. See if Falcon Fulfillment is the best fit for your brand.
How West Paw Utilizes Falcon Fulfillment To Reach Over 1 Million Dogs Across The World
All images courtesy of West Paw
From Fabric to Famous
In 1996, Montana native Spencer Williams made a decision to purchase a small pet toy company known as Pet Pals, in Livingston, Montana. At 23 years old, Mr. Williams had a goal to produce and manufacture the highest quality and safest products for man’s best friend.
West Paw started out making small, fabric pet toys, and over the past 25 years has grown to become one of the most recognized eco-friendly and sustainable pet brands in the US. 25 years after his initial purchase, Mr. Williams had reinvented the pet industry with award-winning eco-friendly pet toys, beds, leashes, collars, and treats.
West Paw began with a recipe box that contained the names of Pet Pals customers. These customers provided the fuel that West Paw needed to continue its road to greatness.
Key Metrics:
- 3x Future Scale Expectation
- Highest Q3 success with Falcon in 2021
- 40+ countries reached
- 6,000+ US retailers
- 1 Million dogs reached
“None of our successes would have happened without the relationships we formed all those years ago, many of which are still going strong today.”¹
Spencer Williams, CEO and Owner, West Paw.
West Paw is now located in Bozeman, Montana, with another injection molding facility in northern Montana. Between their two locations, they now employ over 100 team members. In August 2021, West Paw celebrated its 25th anniversary and now sells to over 6,000 US retailers and can be found in over 40 countries worldwide – that’s a lot of happy dogs.
Em-bark-ing from Self Fulfillment
From 1996 to mid-2021, West Paw continued to do all of its business in-house. They managed each and every order down to the shipping label. From designing, manufacturing, and inventory to fulfillment and delivery. This process was manageable for quite some time but then orders began outpacing their ability to provide their customers with the exceptional customer service they expected from West Paw. Order delays were getting so backed up they reached up to 11 days around peak times. In June of 2021, West Paw began its search for a recognized 3PL partner to help them keep up with the increased demand for American-made pet products.
Inventory and Scalability
West Paw’s primary motivation for beginning its 3PL journey was the need for storage space and inventory control. As the popularity of their eco-friendly dog toys began to soar, so did their order volume. West Paw’s inventory expanded over time to meet wholesale and direct-to-consumer needs throughout the United States. As their order volume and inventory level grew, available space within their warehouse shrunk.
Aside from needing inventory space, West Paw leaders were also looking for a fulfillment partner with the ability to scale with their company and its success. In the last 3 years, sales have doubled and they expect to see this strong growth continue. That’s why it was important to find an accountable 3PL with the ability to scale with West Paw’s success and increasing inventory needs.
Labor
West Paw’s ability to obtain extra labor assistance during peak times was limited. Because of the labor shortage affecting the US, they struggled to recruit extra hands to support their full-time employees. This resulted in longer delivery times, overwhelmed team members, and an increased chance of fulfillment errors.
As a result, when seeking a fulfillment partner, West Paw prioritized labor benefits. This means they needed a company that not only had a full workforce but had the ability to employ more staff if needed during high season. They needed to know they could rely on someone else to keep their fulfillment process running smoothly, accurately, and on schedule.
Shipping & Location
As more companies offer two-day shipping, West Paw’s customers were seeking faster delivery times. Because West Paw was fulfilling orders from Montana, shipments took on average two days longer to reach consumers on the east and west coasts. West Paw needed a fulfillment partner that could provide quick delivery and accessible warehousing locations.
Lending a Hand to Help Tails Wag
Once the team at West Paw decided what they needed out of a 3PL partner, they began their search. Thankfully, Andy Wunsch (Vice President of Sales & Marketing at West Paw), had researched 3PLs and knew what to look for. It didn’t take long for West Paw to discover Falcon Fulfillment.
Soon Sarah Spartas and Andy Wunsch were on their way from Montana down to Falcon’s corporate headquarters and west coast warehouse in Salt Lake City, Utah. Upon arrival, the team was taken on a tour of the warehouse. They were shown where their merchandise would be received, stored, picked, packed, and shipped. All while offering full transparency and answers to each question the team had for Falcon.
“I’ve been inside of over 100 different warehouses and I can spot what’s wrong with them very quickly. During my tour with Falcon, I couldn’t find anything that was [considered] a red flag”
Andy Wunsch, VP of Sales and Marketing at West Paw.
An Improvement in Labor & Scalability
“In the last two days of our biggest month in history, Falcon processed close to 300 orders. Here in Bozeman, we could have done about ⅓ of that.”
Andy Wunsch, VP of Sales and Marketing at West Paw.
Once West Paw and Falcon Fulfillment had made their partnership official, orders went out quickly and smoothly.
As soon as the merchandise was shipped out of Montana to Falcon’s warehouses, hundreds of orders were sorted and organized in designated areas, where they would soon be delivered out to their furry customers.
West Paw was able to see how easily they could scale their company after watching Falcon integrate their inventory effortlessly and without delay. Additionally, peak times were no longer a problem. Instead of the burden of hiring seasonal workers on top of full-time staff, West Paw is now able to focus on more important tasks while Falcon takes care of labor and holiday staffing.
Faster Shipping & Accessible Locations
From West Paw’s warehouse in Bozeman, Montana, Falcon’s warehouse was reached in less than a day via truck. This alone saved two days of shipping West Paw had previously experienced when shipping to the east and west coasts from Bozeman.
Not only is West Paw experiencing faster shipping, but they’re also able to visit Falcon’s warehouse with ease. Drop-ins ensure full transparency and an in-person look at where inventory is stored, how it’s packaged, and much more.
Additionally, Falcon’s east coast warehouse in Kentucky allows West Paw to efficiently deliver items across the country.
Full Transparency & Speedy Onboarding
West Paw’s onboarding with Falcon Fulfillment went rather quickly. Following West Paw’s inquiry, they were assigned a specific account manager who would guide them through the onboarding process step-by-step and go through the new systems they would be integrating with.
Falcon was able to navigate West Paw through the integration of their older software and Falcon’s newer technology. The transfer was painless and simple.
As told to Falcon Fulfillment by Andy Wunsch, Vise President of Sales and Marketing:
“Onboarding took about 12 weeks. [We were] trying to launch in that time frame before we got into our busy season.
[Using Asana], everything was easily tracked, and all the instructions provided by my account manager were easy to follow.
Customer service teams are available in our portal almost every day, and you know, we’re always learning.
Overall, the onboarding was very speedy. I think Falcon could have gone even faster, but West Paw just couldn’t go as fast.
Our IT team had nothing but compliments for the Falcon IT team.”
Fur to Feathers – Culture Matching
West Paw focuses on sustainability, safety, and high-quality products for dogs. It was important for West Paw to find a partner with matching values.
Falcon Fulfillment’s culture compliments West Paw.
West Paw needed a partner who upholds the same eco-friendly values. As a result, the West Paw team felt confident in Falcon’s fulfillment process. They knew their products would reach their customers with the same love and handcrafted care that previously came from the employees who work at West Paw’s warehouse.
“Falcon [has a] commitment to being eco-friendly and [sustainable], whether it’s solar and water, or how the company treats its employees.”
Andy Wunsch, VP of Sales and Marketing at West Paw.
What’s next for West Paw?
Our favorite pet brand has some fun surprises coming up for this holiday season. Pets around the world will soon be enjoying special treats, toys, beds, treats, and much more.
West Paw is expected to scale threefold over the next couple of years and Falcon Fulfillment is excited to support this force for good in delivering happiness to dogs and pets around the world.
Falcon is devoted to maintaining the success of West Paw and striving to provide sustainable and recyclable toys to pets in every home, in every city, in every country.
Here’s to the success and future prosperity of our wonderful partner: West Paw.
“There’s 100 Million dogs in the United States. We’re reaching about 1 million of them. That means we still have a lot of dogs to go.”
Andy Wunsch, VP of Sales and Marketing at West Paw.
Learn more
Boost your e-commerce business by finding a better order fulfillment partner. See if Falcon Fulfillment is the best fit for your brand.