Safety Stock
Also known as: Buffer Stock, Reserve Inventory, Safety Inventory
Definition
Safety stock is the “just in case” inventory that protects against unexpected demand spikes, supplier delays, or shipping disruptions. Too little risks stockouts; too much ties up capital.
Why Safety Stock Matters
| Without Safety Stock | With Safety Stock |
|---|---|
| Stockouts during demand spikes | Continuous availability |
| Lost sales | Captured revenue |
| Customer dissatisfaction | Reliable service |
| Expedited shipping costs | Standard replenishment |
Factors Affecting Safety Stock Levels
- Demand variability - How much sales fluctuate
- Lead time variability - Supplier reliability
- Service level target - Acceptable stockout risk
- Product criticality - Impact of stockout
- Carrying costs - Cost to hold inventory
Basic Safety Stock Formula
Safety Stock = Z × σ × √L
Where:
- Z = Service level factor (1.65 for 95%)
- σ = Standard deviation of demand
- L = Lead time in same units
Safety Stock Strategies
Fixed safety stock: Static buffer quantity Dynamic safety stock: Adjusts based on season, trends ABC approach: Higher safety stock for A items Service level based: Set by acceptable stockout %
Balancing Act
- Too much → Excess carrying costs, obsolescence risk
- Too little → Lost sales, expedited shipping, unhappy customers
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