Formula – How to calculate safety stock
Safety Stock = (Max Daily Usage in Units x Max Lead Time in Days) – (Average Daily Usage in Units x Average Lead Time in Days)
- “Max Daily Usage in Units” is the maximum number of units that are used in a day.
- “Average Daily Usage in Units” is the average number of units that are used in a day.
- “Max Lead Time in Days” is the maximum time it takes to get replacement items.
- “Average Lead Time in Days” is the average time it takes to get replacement items.
The result (safety stock) is the number of items that should be kept in inventory to avoid running out of stock.
An item has a maximum daily usage of 15 units and a maximum lead time of 23 days. It also has an average daily usage of 7 units and an average lead time of 10 days.
Safety Stock = (15 x 23) – (7 x 10) = 345 – 70 = 275
Therefore, the safety stock level is 275 units.
Sources and more resources
- Trade Gecko – Determining your safety stock level – The formula we’re using for this safety stock calculator.
- Wikipedia – Safety Stock – Entry on how safety stock is used in logistics.
- SKU Vault – How to use the safety stock formula: a step-by-step guide – A description of how to calculate safety stock for a company.