Free calculator
The spare stock that covers a late supplier or a busier week than usual, worked out both ways the textbooks teach and turned into days of cover, a reorder point and the cash it ties up.
Safety stock at a 95,0% service level
115units
Service level method
115
9,1 days
Max-demand method
750
59,2 days
Reorder point
685
lead time demand plus this
Sales
Supplier
Your choice
Z × √(lead time × σ of daily sales² + daily sales² × σ of lead time²): covers the swings you can measure.
↑ ↓ to nudge, Shift for ten. Commas or dots both work.
83% of the uncertainty the service level covers is the supplier’s lead time, the rest is the day-to-day swing in sales. Each step up in service level costs more stock than the one before it.
That is 9,1 days of average sales, and €2.202,25 of stock at landed cost. In nouz, order 10 days before the reorder planner’s Order by date to hold it.
An estimate from flat rates. In nouz every order is priced from the costs of its own day.
A safety stock calculator sizes the spare units that cover a late supplier or a busier week than usual. This one works it out both ways the textbooks teach, by service level from how much demand and lead time swing, and by the simpler max-demand method, then turns the answer into days of cover, a reorder point and the cash it ties up.
Two methods
Safety stock is the stock held beyond what the lead time is expected to sell, so that a supplier running late or a week selling faster than usual does not empty the shelf. The question is how much, and the two common answers disagree.
The max-demand method plans for the worst of both at once: your busiest day, repeated for the whole of your slowest lead time, minus what an ordinary lead time sells. It needs no statistics, which is its strength, and it buys certainty with a lot of cash, because the worst day and the worst delivery rarely arrive together.
The service-level method covers the swings you can measure: the standard deviation of daily sales and of the lead time, scaled by a Z score for the share of order cycles you want to end without running out. Raise the service level and the cushion grows faster than the level does.
Either answer is easiest to live with in days. The reorder planner on Insights, Inventory in nouz dates the last day each variant can be ordered, Order by, and holds no cushion of its own, so the calculator converts its answer into the days to order before that date.
Worked example
The calculator’s starting product sells 12,67 units a day from a 45-day supplier, with a day-to-day spread of 4,2 units and a lead time that swings by 5 days.
A service level is the share of order cycles that end without running out. The Z score is how many standard deviations of swing that takes, read off the normal distribution, and every step up costs more stock than the one before it.
Going from 95% to 99% takes 41% more safety stock, and 99,9% needs 1,9 times the 95% cushion. The last few points of service are the most expensive stock a store holds.
Hold a high level for the products that carry the month and a lower one for the long tail, where a stockout costs a sale rather than a customer.
In the app
A calculator works from flat rates you type once. nouz prices every single order from the cost rules that were in force on that order's own date, and rebuilds the same statement every night from your own orders and your own ad spend.
Where it goes wrong
Two of these run out and two tie up cash for nothing, and every one of them is ordinary.
A quoted lead time usually ends at the factory gate or the port. Your stock has to last until the goods are saleable, after freight, customs, inspection and putaway, so measure what the last few orders really took from purchase order to shelf.
On the figures above, ignoring the lead time’s swing takes the cushion from 115 to 47 units. The supplier is 83% of the risk here, more than the customers.
On the same product it asks for 750 units, worth €14.363 at landed cost, against 115 at a 95% service level. Across a catalogue that is warehouse space and cash spent on a coincidence.
A blanket 99% overstocks the slow half of the range to protect the fast half. Set the level by what a stockout costs: high for the products customers come for, lower for the ones they add on.
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