Safety stock is typically calculated using factors like average demand, lead time, and variability in both. Many ERP or inventory management systems allow automatic safety stock calculations, helping businesses maintain optimal inventory levels without overstocking.
A few formulas to calculate safety stock:
- Safety stock = Maximum stock capacity – Average stock level
This approach maximizes storage utilization but increases the risk of overstocking and is not suitable for managing perishable goods.
- Safety stock = Number of days (of autonomy) X Average daily product sales
While straightforward, this method relies on accurately estimating the duration of potential disruptions.
- Safety stock = Average daily consumption X Maximum replenishment lead time.
Useful when delays in restocking are the biggest risk to your supply chain.
Minimum stock is the baseline inventory needed to meet normal demand, while safety stock is an extra buffer held to protect against unexpected demand changes or supply disruptions.
