What is safety stock?
Safety stock is inventory held above expected lead-time demand. It reduces stockout risk when demand increases or deliveries are delayed.
Safety stock = z × √(L × σd² + d² × σL²)
What does the formula mean?
z is the service factor, L lead time, σd demand standard deviation, d average demand and σL lead-time standard deviation.
Example
With 100 units per day, demand deviation 20, lead time 10 days, lead-time deviation 2 days and 99% service, safety stock is approximately 488 units.
Reorder point and service level
Reorder point equals lead-time demand plus safety stock. Higher service requires more stock; balance stockout cost against working capital, space and obsolescence.
Calculate your own scenario
Use the free PurchaseKPI calculator and get the result immediately.
Safety stock calculator