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Safety stock is the extra stock that covers a late delivery or an unusually busy week. Too little and you run out; too much and money sits on the shelf.
Max and average method: (highest daily sales x longest lead time) minus (average daily sales x average lead time). It needs only numbers you already know.
Example: on your busiest days you sell 30 units and the slowest delivery took 10 days; on average you sell 20 a day and wait 7 days. 30 x 10 - 20 x 7 = 160 units of safety stock.
Service level method: Z x standard deviation of daily sales x square root of lead time. Z comes from how often you accept running out; 95% gives Z = 1.645. With a deviation of 5 units a day and 9 days lead time, 1.645 x 5 x 3 = 24.7 units.
Keep more safety stock for:
Up Stock turnover and aging reports show what sells fast and what sits still, so you keep safety stock only where it pays.
Start with the max and average method: it needs no statistics. Move to the service level method when you have enough sales history to measure how much daily sales vary.
90% to 95% suits most items. Use 98% or more only for items whose absence costs you customers, since every extra point needs much more stock.
No. It ties up cash, takes shelf space and, for items that expire, raises the risk of waste. Keep it for items where running out really hurts.
Yes, but keep it small and sell oldest stock first. Track expiry dates so the buffer is used before it goes out of date.
The stock level that tells you to order again
The order size with the lowest total cost
The share of received stock that has sold