1. What is Safety Stock?

Safety stock is additional inventory held to mitigate the risk of stockouts caused by variability in demand and supply lead times. It acts as a buffer against unexpected fluctuations.

2. How Does the Calculator Work?

The calculator uses the statistical safety stock formula:

Where:

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

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

3. Importance of Safety Stock

Details: Proper safety stock calculation helps maintain customer service levels while minimizing excess inventory costs. It's crucial for supply chain resilience.

4. Using the Calculator

Tips:

• Z-score: Use 1.65 for 95% service level or 2.33 for 99% service level
• Standard deviation: Calculate from historical demand data
• Lead time: Use average supplier lead 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. Higher Z-scores provide more protection but require more inventory.

Q2: What if lead time varies?
A: For variable lead times, use the standard deviation of lead time in a more complex formula that combines both demand and lead time variability.

Q3: How often should safety stock be recalculated?
A: Recalculate whenever demand patterns change significantly or at least quarterly to account for seasonality.

Q4: What are limitations of this method?
A: Assumes normal distribution of demand. For intermittent demand, consider alternative methods like Croston.

Q5: How does this relate to reorder point?
A: Reorder point = (Average Demand × Lead Time) + Safety Stock. This calculator helps determine the safety stock component.