Safety Stock Calculation

Safety stock is an extra inventory that businesses keep on hand to prevent stockouts due to unexpected demand or delays in supply. To calculate it, companies assess the average demand for a product, the variability of that demand, and the lead time needed to restock. A common formula involves multiplying the standard deviation of demand during the lead time by a service factor (which reflects the desired service level). This calculation helps ensure that there’s enough product available to meet customer needs, while minimizing excess inventory costs.