How to Calculate Safety Stock?
How to Calculate Safety Stock ? Safety stock, or buffer stock, is a term that is used to describe the amount of inventory or stock beyond pending orders or average demand that should be kept on hand to reduce the chance of a temporary shortfall of materials, or stockout. Stockout can lead to lost sales and lost customers. Safety stock is helpful in dealing with sudden upswings in demand or for making sure there are enough raw materials and supplies on hand to keep production going while waiting for the next scheduled delivery of materials from a supplier. Method 1: Determining Safety Stock from Demand Look to historic demand and demand variability to determine how to avoid stockouts. The following calculations will predict the stock necessary to achieve a certain cycle service level - i.e. the percentage of supply cycles that will result in a stockout. Method 2: Determine average demand Average demand is the total quantity of a material or good required each day over a fixed