How this calculator works
Safety stock is extra inventory held to absorb demand or delivery surprises. The range method is the simplest: work out the most the business could use during the longest possible lead time, and subtract the average demand over the average lead time. The difference is the cushion. The statistical method starts from the normal distribution. A service level such as 95% corresponds to a factor of about 1.645 standard deviations, and the uncertainty in demand during lead time combines demand variability with lead time variability. Multiply the factor by that combined standard deviation to get the buffer. The reorder point adds average demand during lead time to the safety stock: when inventory falls to that level, place an order.
Formula
Range method: safety stock = maximum daily usage x maximum lead time - average daily usage x average lead time. Statistical method: safety stock = z x square root of (average lead time x demand standard deviation squared + average daily usage squared x lead time standard deviation squared). Reorder point = average daily usage x average lead time + safety stock. The z factors are 1.0364 for 85%, 1.2816 for 90%, 1.6449 for 95%, 1.8808 for 97% and 2.3263 for 99%.
Worked example
Maximum usage of 120 units a day for a maximum lead time of 14 days is 1,680 units. Average usage of 100 units over 10 days is 1,000 units, so safety stock is 680 and the reorder point is 1,680. With the statistical method, average usage of 100 units a day, a 10-day lead time, demand variability of 20 units a day and no lead time variability at 95% gives 1.6449 x square root of (10 x 400) = 104.02 units of safety stock and a reorder point of 1,104.02. Adding a lead time standard deviation of 2 days raises safety stock to 345.03 units.
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Frequently asked questions
Which method should I use?
Use the range method when you only have a rough maximum and average and want a conservative buffer. Use the statistical method when you have enough history to estimate variability and have chosen a service level, because it connects the buffer directly to the stockout risk you are willing to accept.
What does the service level mean?
It is the probability that demand during a replenishment cycle is met from stock, under the normal-demand assumption. A 95% service level accepts roughly a 5% chance of running short in a cycle. Higher levels need disproportionately more buffer.
Does safety stock replace the reorder point?
No. Safety stock is the buffer that should remain when a new order arrives; the reorder point is the inventory level that triggers the order. Ordering at the reorder point lets normal demand consume the expected lead time amount while the buffer protects against the unexpected.