Safety Stock Calculation

Overview

Safety stock is buffer inventory held to protect against demand and lead time variability. Formula: SS = z × √(LT × σ²_d + d² × σ²_LT) where z=service factor, LT=lead time, σ_d=demand std dev, d=avg demand, σ_LT=lead time std dev. Directly trades inventory cost against stockout risk.

When to Use

Trigger conditions:

• Setting inventory buffers for variable-demand items
• Choosing target service levels and computing required safety stock
• Optimizing safety stock across a portfolio of SKUs

When NOT to use:

• When demand is deterministic (use EOQ without safety stock)
• For one-time purchase decisions (use newsvendor model)

Algorithm