How to Calculate Safety Stock
What is Safety Stock?
Calculates buffer inventory to prevent stockouts due to demand uncertainty or supply delays. Balances carrying costs against stockout costs.
Formula
Calculate: safety stock = z × std dev × √(lead time)
Step-by-Step Guide
- 1Determine demand variability (standard deviation)
- 2Set service level (95%, 99%, etc.)
- 3Find z-score for service level
- 4Calculate: safety stock = z × std dev × √(lead time)
Worked Examples
Input
10/day, 5day lead
Result
50 units
Common Mistakes to Avoid
- ✕Over-stocking to prevent all possible stockouts
- ✕Not accounting for actual demand patterns
Frequently Asked Questions
How much safety stock should I hold?
Depends on variability and service level; 95% service level typical, sometimes 99% for critical items.
What's the cost of stockouts?
Lost sales, customer dissatisfaction, emergency expedited shipping, and market share loss.
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