What is a safety stocks? How is it calculated?

Safety stock is a buffer quantity kept on hand to absorb unexpected events, such as higher-than-expected demand or supplier delays. It acts as a cushion to prevent stockouts.

To calculate it, you typically consider demand variability and lead time variability (for example, using the standard deviation of demand over the lead time) as well as the desired service level. A common formula is:

Safety stock = service factor × standard deviation of demand during lead time.

This reserve helps maintain product availability despite uncertainty.