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Methods fo Calculating Safety Stock

There are a vast number of ways to set Safety Stocks and little to help you select which one to use. Even much of the most sophisticated inventory management software in the world offers a menu of methods but no guidance in selecting among them.

Listed below are a few of the most commonly used Safety Stock methods. None of these is optimal. Our optimal Safety Stocks will always beat these methods—or any other—more Fill and Less Cost.

Use our FREE online calculator to compare your method to Optimal Safety Stocks.


Other Safety Stock Methods


  1. Enough to cover the expected demand during the Lead-time or a portion of it.
  2. The “2-Week’s Worth Approach” and its generalization the “X-Week’s Worth Approach”, where X can be any positive number.
  3. Establish Classes, A, B, C and so on, usually based on either past unit or dollar sales. Then apply a Safety Stock approach (X-week’s worth, for example) to the individual Classes separately—higher week’s worth for the more important Classes, for example.
  4. Establish a desired service level by A, B, C Class. Assume demand is distributed with a Normal probability distribution. Then apply factors that depend on the item’s historic forecast variability, forecast error or the standard deviation of historic demand.
  5. Apply factors to increase or decrease Safety Stocks dependent on the item’s (or the Class’s) Lead-time in comparison to a reference Lead-time. An approach, used by some, is to make the Safety Stock of an item proportional to the square root of its Lead-time.
  6. Increase or decrease Safety Stocks as the historic Lead-time variability increases or decreases.
  7. Account for Order Quantities. Larger Order Quantities suggest smaller Safety Stocks.
  8. Account for Package Quantities.
  9. Establish Classes based on the profitability or margin of the item and establish Safety Stocks dependent on these Classes.
  10. Determine the cost of a stock-out. Does the customer wait until you’re in stock? Does he go elsewhere? Are some of his future purchases at risk? Are they all at risk? Then adjust Safety Stocks (or service levels) accordingly—higher as the cost of stock-outs goes up.
  11. Combinations of the above.



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Cost Based Safety Stocks