algo-sc-safety-stock
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
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