Quick Summary: Supply risk quantifies delivery uncertainty while the offset adjusts for timing consistency. Use these measures together to calibrate safety stock, protecting against late receipts without creating unnecessary excess.
Why Supply Risk Matters
Even with perfect demand forecasts, supplier performance can introduce major variability:
Late deliveries can lead to stockouts.
Partial shipments can result in missed sales or production delays.
Unreliable lead times can cause premature or delayed replenishment.
Supply Risk quantifies these uncertainties, ensuring your replenishment planning reflects actual supplier behavior rather than ideal conditions.
What Supply Risk % Measures
Supply Risk represents the degree of variability in a supplier’s negative delivery outcomes. These negative outcomes are evaluated relative to the supplier’s historical average delivery behavior, not the planning lead time configured in the app.
It focuses specifically on inconsistencies that increase the likelihood of stockouts. In other words, how unstable the supplier’s lead time performance and order fill performance have been over time.
This measure includes:
Lead Time Performance: How frequently and by how much actual delivery times exceed the supplier's historical average lead time/delivery time.
Order Fill Performance: How often and to what extent suppliers deliver less than the quantities ordered.
Supply Risk does not consider early or over-deliveries, since these do not increase stockout risk. Therefore, the higher the variability in negative supplier performance, the greater the Supply Risk.
What Supply Offset Represents
Offset measures bias in delivery performance, i.e., the average difference between your planning Lead Time and the actual measured Lead Time.
It represents the average bias in your data, regardless of the cause.
That difference might exist because:
The unreliable supplier repeatedly delivers late, delivers early, over-supplies or under-supplies.
The planning lead time used by the app is simply inaccurate.
Offset does not influence when orders are placed. Instead, it adjusts the safety stock to provide suitable coverage while you wait for orders to be recieved.
A Positive Offset indicates that, on average, the supplier delivers later than planned or in smaller quantities than ordered. To maintain service levels under these conditions, safety stock is increased to provide additional coverage for potential delays or shortfalls.
A Negative Offset indicates that the supplier generally delivers earlier or in larger quantities than expected. While this does not necessarily reflect superior performance, it reduces the likelihood of stockouts. In response, Netstock decreases the safety stock buffer to align with the lower level of supply risk.
Relationship Between Supplier Risk and Offset
Supplier Risk and Offset are calculated from the same set of purchase order data, but focus on different aspects of supplier behavior:
Measure | Focus | Interpretation |
Risk Percentage | Variability in negative outcomes (late or short deliveries) | Reflects exposure to stockout risk |
Offset | Average bias across all outcomes (early, late, over-supplied, or short-supplied) | Reflects average difference between expected and actual performance |
They may be interpreted independently.
For example:
If a supplier often delivers 10 or 30 days late, the Offset (positive bias) will increase, and so will the Risk, because of the high variability in late deliveries.
If a supplier consistently delivers 20 or 21 days late, the Offset (positive bias) will still increase, but the Risk will remain low, as the delay pattern is stable with little variability.
⚠️ Offset captures the direction of the difference, while Risk measures the volatility of adverse outcomes.
Both measures influence safety stock but in distinct ways:
Supplier Risk increases safety stock to protect against unpredictable late or short deliveries.
Offset adjusts safety stock upward or downward to account for the average difference between expected and observed supplier performance, whether early, late, over-supplied, or short-supplied.
While safety stock automatically increases to protect against unreliable suppliers, this additional buffer comes at a cost:
Excessive safety stock ties up working capital, so it is important to investigate the underlying cause of unreliability rather than accepting higher buffers as permanent.
An elevated safety stock level may signal either:
An inaccurate lead time data, where the entered lead time is unrealistic and suppliers cannot consistently perform to that target, or
A supplier performance issue, where the supplier is genuinely unreliable.
Understanding which scenario applies is essential for optimizing safety stock and controlling carrying costs.
To perform this investigation:
Review performance metrics using the Supplier Performance tab.
Analyze trends across suppliers in the Supplier Performance feature to determine whether the issue originates from incorrect lead time data or supplier inconsistency.
➜ For more on this topic, read: How To: Use the Supplier Performance Tab and Supplier Performance Feature
Configuration Settings
Under Settings > Configuration > Supplier, you can adjust how Supplier Risk and Offset are calculated:
Risk Defaults: Default values used when supplier history is insufficient.
Risk Limits: Minimum and maximum allowable percentages or offset days.
Lead Time Cut-offs: Thresholds for excluding extreme early or late deliveries.
Calculation Filters: Criteria for removing outdated or abnormal orders from analysis.
➜ For more on this topic, read: All about - Configuration settings (Advanced)
How To Review Supply Risk
➜ Read: How To: Review Supply Risk
How To Use the Supplier Performance Tab
Supplier Performance Feature
➜ Read: Supplier Performance Feature
⚠️ Watchouts
Offset and timing: The Offset adjusts the amount of safety stock, not the timing of purchase orders.
Interpreting high risk: Elevated Supply Risk may result from true supplier inconsistency or from inaccurate lead time data. Always verify lead time accuracy before drawing conclusions about supplier reliability.
Global settings caution: Avoid applying broad or global offsets that mask supplier performance issues. Each supplier’s unique performance should remain visible for accurate analysis.
💡 Tips
Use data for collaboration: Review supplier performance data with suppliers to identify opportunities for improvement in delivery reliability and consistency.
Reassess safety stock: Treat unusually high safety stock levels as indicators of potential improvement rather than permanent safeguards.
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