Safety stock calculation examples: 5 worked problems

These five examples work through the most common ways to calculate safety stock, from the simplest to the one that covers both demand and lead-time swings. Every number is made up for the example. For the methods themselves and how to choose one, read our guide to the safety stock formula.

All five examples use the same item: it sells 40 units a day on average, and the supplier’s lead time is 10 days.

Example 1: days of cover

Safety stock = average daily demand × days of cover

Your policy is to hold 5 days of cover. Safety stock = 40 × 5 = 200 units. It is quick and easy to explain, but it gives a steady item and an erratic one the same protection.

Example 2: maximum minus average

Safety stock = ( maximum daily demand × maximum lead time ) − ( average daily demand × average lead time )

In the last year the item sold at most 60 units in a day, and the longest delivery took 14 days. Safety stock = (60 × 14) − (40 × 10) = 840 − 400 = 440 units. This method plans for the worst day and the worst delivery at the same time, so it usually holds far more than you need.

Example 3: the statistical formula, demand varies

Safety stock = z × σ_d × √L

Daily demand has a standard deviation (σ_d) of 12 units, and you want a 95% service level, so z = 1.645. Safety stock = 1.645 × 12 × √10 = 1.645 × 12 × 3.162 = 62.4, rounded up to 63 units.

Example 4: demand and lead time both vary

Safety stock = z × √( L × σ_d² + d² × σ_L² )

Now the supplier’s lead time also varies, with a standard deviation (σ_L) of 2 days.

Part	Working	Result
Demand variation over the lead time	10 × 12²	1,440
Lead time variation	40² × 2²	6,400
Square root of the total	√7,840	88.5
Safety stock at 95%	1.645 × 88.5	146 units

Safety stock more than doubles, from 63 to 146 units, and almost all of the increase comes from the supplier, not from customers. Shortening or steadying the lead time is often worth more than a better forecast.

Example 5: what the service level costs

Using Example 3, here is safety stock at four service levels:

Service level	z	Safety stock
90%	1.28	49 units
95%	1.65	63 units
98%	2.05	78 units
99%	2.33	89 units

Going from 90% to 99% adds 40 units, and each extra point costs more than the one before. Set a higher level for the items that matter most, for example by ABC/XYZ class, rather than one level for everything. The service level here is the chance of not running out in a cycle, which is not the same as fill rate: see fill rate vs service level.

From safety stock to the reorder point

Reorder point = average daily demand × lead time + safety stock

With Example 4’s safety stock, the reorder point is 40 × 10 + 146 = 546 units: order when the stock on hand plus what is on order falls to 546. Read more in reorder point vs safety stock.

A common mistake: mixing time units

If your demand history is monthly, do not use it with a lead time in days. Use the same unit for both. For example, a monthly standard deviation of 70 units and a lead time of half a month give 1.645 × 70 × √0.5 = 81.4, or 82 units. Mixing a monthly deviation with a lead time of 15 “days” would give 1.645 × 70 × √15 = 446 units, more than five times too much.

Check your own numbers

Try your own figures in the free safety stock calculator, which covers all of these methods. To do it for every item and location at once, from your sales and purchase order history, see inventory planning software.

Frequently asked questions

Which safety stock formula should I use?

Days of cover is simple and fine for C items. For A and B items with sales history, use the statistical formula, and the version with lead-time variability if your supplier lead times vary.

How do I get the standard deviation of demand?

Take 12 to 24 periods of sales history for the item, in the same unit of time as the lead time (days or weeks), and use STDEV.S in Excel. Remove one-off orders first.

Is safety stock part of the reorder point?

Yes. The reorder point is the demand expected during the lead time plus the safety stock.