Safety Stock Calculation Example
Let’s illustrate the safety stock formula with an example calculation. Let’s say you run a women’s swimwear store. Summer is just around the corner, and you want to ensure you have enough safety stock of bikinis, one of your best-selling products, to meet the demand for this favorite seasonal product. To begin, you need to determine your maximum daily usage, so you look at sales reports from the past three summers. Looking at this data, you see that the most bikinis you’ve ever sold in one day are 20.
Maximum daily usage = 20 bikinis
Next, you need to identify your maximum lead time. You review the inventory logs from the past few years and find that two summers ago, due to the global supply chain crisis, you had to wait three weeks to receive a new shipment of bikinis from your supplier.
Maximum delivery time = 21 days
When you review your bikini sales data, you see that you sell five bikinis on average.
Average daily usage = 5 bikinis
And by reviewing your inventory logs, you see that a new shipment of bikinis typically takes 10 days to arrive.
Average delivery time = 10 days.
Now let’s enter these numbers into the safety stock formula.
Safety Stock Units = (Maximum Daily Usage * Maximum Lead Time) – (Average Daily Usage * Average Lead Time)
Safety stock units = (20*21) – (5*10) = 420 – 50 = 370
According to the calculation, you need to keep an additional 370 bikinis in stock to avoid a stockout due to shipping delays or an unexpected sales increase.