What is safety stock! How is it determined?

Question

Accepted Answer

Safety stock is the extra inventory kept to prevent stockouts due to unexpected demand or supply chain disruptions.

Safety stock is a buffer stock that acts as a cushion against demand variability and supply chain uncertainties.
It is determined by considering factors such as lead time, demand variability, and service level.
The formula for safety stock is: (Maximum daily usage x Maximum lead time in days) - (Average daily usage x Average lead time in days)
For example, if a company sells 100 units of a product per day on average and the lead time is 5 days, with a desired service level of 95%, the safety stock would be 47 units.
Safety stock can also be determined using statistical methods such as standard deviation and probability distribution.

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