Safety Stock Calculator
Determine the optimal level of extra inventory to prevent stockouts.
Recommended Safety Stock:
0 units
Reorder Point (ROP):
0 units
Lead Time Demand:
0 units
What is Safety Stock?
Safety stock is a buffer of "extra" inventory held by a business to mitigate the risk of stockouts (running out of stock). These shortages are often caused by fluctuations in supply and demand, such as a sudden surge in sales or a delay from a supplier.
The Safety Stock Calculation Formula
The most common method for calculating safety stock is the "Heuristic" or "Max-Minus-Average" formula. It accounts for variability in both consumption and delivery time:
Safety Stock = (Max Daily Usage × Max Lead Time) – (Avg Daily Usage × Avg Lead Time)
Understanding the Components
- Max Daily Usage: The highest number of units sold or used in a single day during peak periods.
- Max Lead Time: The longest time (in days) it has ever taken for a supplier to deliver an order.
- Average Daily Usage: Your typical sales volume per day.
- Average Lead Time: The standard delivery time expected from your supplier.
Example Calculation
Imagine a retailer sells an average of 20 laptops per day, but on busy days, they sell up to 40. The supplier usually takes 5 days to deliver, but it has taken as long as 10 days in the past.
- Scenario: (40 units × 10 days) – (20 units × 5 days)
- Calculation: 400 – 100 = 300 units.
In this case, the retailer should hold 300 laptops as safety stock to ensure they don't run out during supplier delays or sales spikes.
The Reorder Point (ROP)
Once you know your safety stock, you can calculate your Reorder Point. This is the inventory level that triggers a new purchase order. It is calculated by adding your average demand during the lead time to your safety stock.