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Newsletter 04: Safety Stock Welcome back to The Newsletter and Happy New Year from efficiency.coffee! In this edition of The Newsletter we will explore safety stock, why it’s important, and how to set safety stock levels for green coffee components. What is Safety Stock? Safety stock is extra green coffee inventory that is held to decrease the chances of running out of a green coffee component because of an unexpected fluctuation in demand or a supply chain issue. Safety Stock example: A coffee roaster is roasting an average of 1,200 lbs of an important Brazil component each week. That company moves 2,400 lbs of the Brazil component from the importer warehouse every two weeks to keep up with demand for the product. The company also keeps an extra 1,200 lbs of safety stock of the Brazil component in the warehouse. There is a winter storm that delays the company’s truckload of coffee from the importer warehouse, but the company is able to keep producing all of their products because the safety stock that they are holding ensures that they don’t run out of important green coffees due to the delay. How to Set Safety Stock Levels? Inventory managers for coffee roasting companies should have safety stock levels for all of the company’s green coffee products. A basic safety stock formula for green coffee is: Safety Stock Level = Lead Time from Importer Warehouse (weeks) x Average Demand (weeks) When setting safety stock levels, inventory managers should also consider: How variable is demand for this product? A green coffee product with highly variable demand will require higher safety stock levels than a product with low variability. How important is this product for the company? If it is a huge problem for the company to run out of the product, then the company should carry more safety stock. Conversely, if the product can easily be replaced by a similar coffee component, then the company can carry less safety stock. What is the lead time to get more of this product from the importer warehouse? Lead time from the warehouse is an important consideration. If a coffee roaster is located very close to a major port with a big coffee warehouse, they will need less safety stock than a similar company that is far from the importer warehouse. A company should also consider how reliable their supply chain from the warehouse to the roastery is. For example, if there are often big winter storms that disrupt the transit of coffee, the company may want to carry extra safety stock in the winter months to account for the weather. Safety Stock Scenario 1 Here is an example calculation of an appropriate safety stock level for a green coffee product used by a coffee roaster in Buffalo, New York. Product: Washed Colombia Tolima
If we use the formula: Safety Stock Level = Lead Time from the Importer Warehouse (weeks) x Average Weekly demand Then we find: Safety Stock Level = 1 x 1,000 Safety Stock Level = 1,000 lbs The company can use 1,000 lbs as a safety stock level for this product. The company should also consider that the product is very important to the company, the company is quite far from the warehouse, and the company is likely to experience weather delays when ordering coffee. If the company has the space in the warehouse, they may consider an even higher safety stock level of 1,200 lbs. Safety Stock Scenario 2 Let’s calculate a safety stock level for a coffee company in Houston, TX. Product: Single Origin Decaf Ethiopia
Safety Stock Level = Lead Time from the Warehouse (weeks) x Average Weekly demand Then we find: Safety Stock Level = .5 X 500 Safety Stock Level = 250 lbs The roasting company is close to the importer warehouse. Demand for the product is consistent, and the roasting company has an easy solution if they should happen to run out of inventory for this green coffee. So, the company does not need to keep extra safety stock, and might even consider a lower safety stock level for this product of around 150 pounds. Safety Stock Summary Safety Stock is an important concept for all inventory managers. Keeping appropriate safety stock levels of green coffee products can help green coffee buyers make sure that they don’t run out of key coffee components during the production day. Safety stock is also important for other products that coffee roasters stock such as bags, stickers, retail products, oat milk and many others. Tune into The Newsletter in February to learn about inventory reconciliation, learn how to conduct an inventory reconciliation, and understand why it’s important for coffee roasting companies.
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AuthorJay Kling is the Author of the Coffee Supply Chain Newsletter and the person behind Efficiency in Coffee. Jay is a green coffee buyer and consultant looking for ways to make coffee more sustainable. Archives
February 2025
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