Companies calculate and keep safety stocks as part of their overall inventory management as a matter of best practice. The science is not new; almost every commercial supply chain planning software enables at least one version of safety stock calculation. There is a range of methodologies available out there, based on:

  • Period coverage (backward or forward)
  • Normal distribution
  • Bootstrapping
  • Optimization-based (linear programming) methods

Over the years, I have had doubts and questions about these methods. Lately, I have also been fielding questions on safety stocks on LinkedIn. Some of these questions are similar to ones I have had over the years; others can lead to a lot of head-scratching. Here is a sampling of questions about safety stock, some from recent times and some from the past:

  • I have always used 3 periods of demand as my safety stock. What is wrong with that?
    • You probably have too much safety stock.
  • My customer gives me a long lead time on their orders. How best to account for this in the safety stock calculations?
    • Lucky you! You may need less safety stock.
  • My supply is not always reliable – I do not always get what I order. How best to account for this in my safety stock calculation?
  • My suppliers have quality issues. On average, only 90% of the product received is usable. Should I account for this in my safety stock?
  • I have heard about the cycle service level and the fill rate service level. Which should I use? (more on this here)

Register today and join me on Wednesday, November 9, 2022, at 11 am ET for our latest webinar “How to Calculate Safety Stock: Pros and Cons of Different Methods” where I will discuss the pros and cons of these various methods. Attendees will walk away more informed about how to approach the question of setting safety stock in their business.

Safety Stock Webinar