Wednesday, 21 May 2014

The Importance of a Safety Stock


Last month, my husband and I did what only seems sane to sleep deprived new parents.  We embarked on a trans-Atlantic airplane trip with our 7 month old... who was on the verge of crawling.

In preparation for our trip I polled all my Mommy friends for advice.  The one common thread:

"Bring more diapers than you think you'll need."



Everyone had an urban legend-esque story of someone who knew someone who got stuck on the tarmac for 8 hours or who's kid came down with a stomach bug somewhere over Greenland.

So we packed a lot of diapers.  30 of them in our carry on for our 6 hour flight and another 25 in our checked luggage to get us through our first day until we could go shopping.

I can see some of you nodding along; yup, that sounds like a good amount.  Had we been backpacking through a Costa Rican jungle, it would have been a good amount.  We were travelling to a major metropolitan area in an English speaking country.  And we were staying with family.  And we were only gone for 10 days.  It was more diapers than I thought I would need.

We ran out of diapers the day before we came home.  And being the diligent parents we are, bought 30 more for the flight home.  We typically cloth diaper, so three weeks later we used the last vacation diaper.

This got me thinking.  What is "more than you think you'll need"?  Really, what we're talking about is Safety Stock.

Safety stock is the inventory you hold to insure against a stock out situation.  Stock outs can be costly, especially if they bring production lines to a standstill or incur customer penalties for late deliveries.  In this instance, running out of diapers midway across the Atlantic could be disastrous, we would want to ensure that our safety stock protected us 99% of the time.

When picking your safety stock you need to think about the holding costs of the inventory vs the costs of a stock out.  In my case, diapers are small and light and infants get their own baggage allowance.  We had plenty of space so the holding costs were small.  The cost difference between buying diapers at home and buying them abroad was negligible (<$10 for the week).  There was the lost opportunity costs associated with packing other items, it could have saved me having to do laundry half way through our trip.

Running out of diapers is far more costly than bringing lots of diapers.

So the more diapers the better.  But maybe there is a more realistic estimate than 55 we schlepped across the ocean (and the 30 we carried back).

Our total travel time was going to be 12 hours, but we didn't want to have to go shopping as soon as we landed so we'll assume we wanted a full 24 hours worth of diapers.

Using the tracking data I covered in the Sleep Post, I generated a histogram showing the daily demand for diapers.  I had 75 days worth of data and it graphed like this:



As expected, the data more or less has a normal distribution (the red line on the graph).  The median value was six, 27% of the time six diapers were enough to get us through a 24 hour period.  The standard deviation was 2.  What this mean is that 10 diapers will suffice for a 24 hour period 99% of the time.  The caveat being that this only holds under the conditions seen during the 75 days of data.

So let's make some assumptions on what the worst case scenario would be.

1) The flight is delayed.  We had one connection, but it was also in a city where we had family.  If we weren't on the plane, we would only tolerate a 6 hour delay before it would make more sense to leave the airport.  If we're stuck on the tarmac, well lets assume that can't be more than 8 hours.  So now our 12 hour transit time becomes 20 hours.  Still within our 24 hour assumption, so we wouldn't require any additional diapers, but we'd have to go shopping shortly after arriving.

2) Our diaper usage in a 24 hour period is higher than expected.  So let's say the little monkey comes down with some sort of virus and we're changing diapers at the rate of 1 an hour.  24 hours, 24 diapers.  And we still don't have to go shopping upon arrival.  But we may want to find a doctor...


So the 55 I packed... More than twice what I would ever need.

Turns out what I needed more than diapers was a change of clothes, for me.  There's nothing quite like being thrown up on at 30,000 feet.

Blue Skies and Tail Winds.

OpsMama

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