Safety Stock#
Extra inventory held to buffer against demand or supply variability.
Important
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What it is#
Safety stock is the buffer inventory held to absorb uncertainty in demand and supply — the cushion that keeps you selling when demand spikes or a shipment is late. It is the difference between a naive “average” reorder level and a robust one.
The formula#
The statistical form sizes it from the service level and demand variability:
where \(Z\) is the service-level z-score (1.28 for 90%, 1.65 for 95%, 2.33 for 99%), \(\sigma_D\) is the standard deviation of demand per period, and \(L\) is the lead time.
The trade-off#
More safety stock raises the service level (fewer stockouts) but ties up capital in holding cost — so the service level is chosen by weighing stockout cost against carrying cost, often set higher for critical or perishable items (via ABC / XYZ classing).
Theme: Operations & Supply Chain · All terminology
Hint
Mind map — connected ideas
Reorder Point (ROP) Optimization · Demand Forecasting · Fill Rate · Stockout Rate · Backorder Rate · Long Lead Times
Hint
More in Operations & Supply Chain
Backorder Rate · Crew Overtime · Demand Forecasting · Fill Rate · Long Lead Times · Long-Tail Items · Lost Sales Value · Overstock % · Real-Time Inventory Tracking · Reorder Point (ROP) Optimization · SKU · Slow-Moving SKUs · Stockout Rate · Stockouts
See also
Source article Adapted (context, re-expressed) in our own words from: Safety Stock (insightful-data-lab.com).