Safety Stock

Safety Stock Calculator

Avg Demand:  

σ of Lead Time:  

z-score:  

This is based upon your desired service level (or fill-rate) // See below for service level conversion to z-score

    

Solution

Safety Stock Level =  

This calculator uses SSL = Z × σLT × avg D

Quick reference service level to z-score conversion:
99.9% service level = 3.49 z-score
99% service level = 2.33 z-score
97% service level = 1.88 z-score
95% service level = 1.65 z-score
91% service level = 1.34 z-score

Safety Stock Formula

There are several methods to calculate safety stock. Below are three approaches an organizations may decide to use to determine the appropriate inventory level for a product. The first approach is the most basic and doesn't quite confront risk of a stock out, the last is the more complex, but the calculation attempts to mitigate this risk.

The most basic SSL:

SSL = avg LT * avg D

avg LT is average time it takes to receive a product once the order has been placed
avg D is the average demand of that product

Approach number two is a more standard approach that seeks to minimize risk of a stock-out:

SSL = Z × σLT × avg D

where,

Z is the desired service level
σLT is the standard deviation of lead time
D avg is demand average

Approach number three (below) is a little more complex; it takes into consideration Norm's Inverse, but here we use a factor that provides an approximate equivalent.

SSL = [[(LT × σD^²) + (D avg × .92^²)]^^1/2] × Z

where,

LT is the average Lead Time from order placement to receipt
σD is Demand Standard Deviation
avg D is demand average
.92 is squared and allows us to achieve a similar result to what we would get if we used Norm's Inverse
Z is the desired service level (also known as fill rate)

If you need a calculator to determine your Lead Time Standard Deviation or need more information on what standard deviation is, visit Standard Deviation Calculator and the site walks you through the steps as well as provides a calculator.

 

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What is a Safety Stock Level?

A Safety Stock Level (SSL) is the level of stock that an organization wants to keep on hand to mitigate the risk of a stockout. A stockout means lost sales opportunities; a decrease in potential revenues. For low value items, a standard SSL should suffice. However, for high value items or where it is critical to have quantity of an item on hand for sales organizations will want to take service level into consideration. Using a service level seeks to ensure that the organization has stock on hand at all times, which is particularly important in the event there is a spike in demand, or an issue with the supplier and it takes longer than anticipated to receive the goods.