Safety stock calculator
Safety stock is the extra stock that covers demand and delivery surprises while you wait for an order. This calculator uses the standard formula: a service-level factor times the variation in demand over the lead time.
The safety stock formula
Safety stock = Z × √( lead time × σd² + average demand² × σLT² )
Z is the service-level factor: how many standard deviations of protection you buy. 95% needs Z = 1.645, 99% needs Z = 2.326. Each step closer to 100% costs much more stock than the one before.
σd is the standard deviation of daily demand and σLT the standard deviation of the lead time in days. When deliveries are reliable (σLT = 0) the formula becomes Z × σd × √(lead time).
The formula assumes demand varies around a stable average. For new items, seasonal peaks or promotions, review the result by hand.
Worked example
An item sells 20 units a day with a standard deviation of 6. The supplier takes 7 days, give or take 1 day. For a 95% service level, Z = 1.645.
Safety stock = 1.645 × √(7 × 6² + 20² × 1²) = 1.645 × √(252 + 400) = 1.645 × 25.53 ≈ 42 units. The reorder point is then 20 × 7 + 42 = 182 units.
How to use the result
Pick the service level by item
Best sellers and items customers cannot wait for deserve 98–99%; slow, cheap or easily replaced items can sit at 90–95%.
Feed the reorder point
Add safety stock to lead-time demand to get the reorder point — the reorder point calculator does that step.
Shorten lead times first
Lead-time variation often drives safety stock more than demand does. A more reliable supplier can free more cash than any formula.
Questions and answers
Extra stock held to cover demand that is higher than average or deliveries that are later than usual, so you do not run out while waiting for an order.
Multiply the service-level factor Z by the standard deviation of demand over the lead time. With reliable deliveries that is Z × daily demand standard deviation × √lead time.
Most businesses use 95% for ordinary items and 98–99% for key items. Moving from 95% to 99% raises safety stock by about 40% for the same item.
Take daily sales for a normal period of at least a few weeks and use a spreadsheet’s STDEV function on them.
It lowers the chance of running out but ties up cash and raises carrying costs and the risk of dead stock, so it is a balance.
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Let the app work it out for every item
Cash Flow Inventory works out each item’s safety stock from its demand, lead time and the service level you choose, and keeps it up to date every night. The free plan has no time limit and needs no card.