About Safety Stock Calculation

Safety stock is the additional inventory maintained to mitigate the risk of stockouts caused by variability in demand and supply lead times.

Key Components:

• Service Level Factor (Z): Represents the desired probability of meeting demand during lead time. Higher values indicate greater protection against stockouts.
• Standard Deviation of Daily Demand (σd): Measures how much daily usage fluctuates from the average demand.
• Lead Time (LT): The time interval between placing an order and receiving the inventory.

The calculation considers how these factors interact to determine the optimal buffer stock needed to maintain service levels while minimizing excess inventory.