Safety stock calculator

The formula

Safety stock is the gap between a bad month and a normal one.

safety stock = (worst daily sales × worst lead time)
             − (average daily sales × average lead time)

You are working out two pictures of the same period. One is the month where everything goes wrong. One is the month where nothing does. The difference between them is the stock that gets you through the first.

A worked example

On your busiest normal days you sell twenty units. On average you sell twelve. Your supplier usually takes fourteen days and once took twenty one.

The bad case is twenty times twenty one, which is 420 units. The normal case is twelve times fourteen, which is 168 units.

The difference is 252 units. That is your buffer, and at twelve a day it buys you about three extra weeks.

What a good number looks like

A buffer worth holding covers a real bad month. It does not cover the worst week in the shop’s history, because stock that sits still is cash that sits still, and it can turn into dead stock.

Two honest inputs make this work. Use your busiest normal week, not your single best day. Use the slowest that supplier has actually been, not the slowest you can imagine.

If the answer comes out at zero, you have entered the same figure twice. That means you have described a supplier who is never late and a shop that never gets busy. Neither exists.

Where this goes next

Safety stock on its own changes nothing. It works by raising the level at which you place the order, so take the answer and put it into the reorder point calculator.

A buffer is also the cheapest fix for a supplier who misses dates. Before you raise it, check whether the real problem is a stockout caused by bad counts rather than by late deliveries. Buffering a counting problem just hides it at your own cost.