1. What is Safety Stock?

Definition: Safety stock is the extra inventory kept on hand to mitigate the risk of stockouts caused by variability in demand and supply lead times.

Purpose: It acts as a buffer to prevent lost sales and maintain customer satisfaction when actual demand exceeds forecasts or when suppliers are delayed.

2. How Does the Safety Stock Formula Work?

The calculator uses the statistical formula:

Where:

• \( Z \) — Z-score corresponding to desired service level (unitless)
• \( \sigma_d \) — Standard deviation of demand (units)
• \( LT \) — Lead time (days)

Explanation: The formula accounts for demand variability and lead time uncertainty to determine the appropriate buffer stock level.

3. Importance of Safety Stock

Details: Proper safety stock calculation helps businesses balance inventory costs with service levels, optimizing supply chain performance.

4. Using the Calculator

Tips:

• Z-score: 1.65 for 95% service level, 2.33 for 99% service level
• Demand standard deviation: Calculate from historical demand data
• Lead time: Average supplier delivery time in days

5. Frequently Asked Questions (FAQ)

Q1: How do I determine the right Z-score?
A: Choose based on your desired service level. Common values: 1.28 (90%), 1.65 (95%), 2.33 (99%).

Q2: What if my lead time varies?
A: Use the standard deviation of lead time in a more advanced formula that accounts for both demand and lead time variability.

Q3: How often should I recalculate safety stock?
A: Recalculate whenever demand patterns change significantly or at least quarterly.

Q4: Does this work for all product types?
A: Best for products with stable demand patterns. For intermittent demand, consider other methods.

Q5: How does safety stock affect inventory costs?
A: Higher safety stock increases holding costs but reduces stockout costs. Find the optimal balance.