How to Calculate Safety Stock


Safety stock is a term in inventory management that stands for an amount of product ordered to account for a variety in consumer demand. When inventory is ordered, it is important to minimize the difference between the demand for your product and the amount of product you have, both in stock and on order. Therefore, an equation can be used to determine what a reasonable amount of safety stock should be ordered in addition to the quantity needed to maintain a base stock level. Below are instructions to calculate the safety stock on paper once you know all your variables, and a link to a safety stock calculator in Microsoft Excel.

Things You'll Need

  • Scientific calculator
  • Lookup table

How to Calculate a Standard Loss Function

  • Before you can calculate your safety stock, you must determine the standard loss function. Subtract the desired fill rate from 1.

  • Multiply this sum by the demand, which is the amount of items that will be consumed or bought.

  • Multiply this sum by the time between orders. Write this sum down and set aside.

  • Add the time between orders (from Step 3) with the lead time. This is the time between your reorder decision and renewed availability.

  • Take this sum to the 1/2 power.

  • Multiply this sum by the standard deviation. See the Resources section below for steps to calculate the standard deviation.

  • Divide the sum from Step 3 by the sum from Step 6. This is the standard loss function.

How to Calculate Safety Stock

  • Refer to a lookup table and determine what the variable "z" for the standard loss function is.

  • Take the sum from Step 5 in the previous section (which is the time between orders plus the lead replenishment time taken to the 1/2 power) and multiply it by the standard deviation.

  • Multiply the sum with variable "z" found in Step 1.

  • This sum is the safety stock.


Promoted By Zergnet



You May Also Like

  • How to Calculate Safety Inventory

    How to Calculate Safety Stock; Calculation of Desired Ending Inventory; How to Calculate a Required Inventory Level; How to Calculate Base Inventory...

  • How to Calculate Buffer Stock

    This is called buffer stock. To raise a price, ... Westegg: The Inflation Calculator; Photo Credit barn and silo image by Tom...

  • What Is Safety Stock?

    How to Calculate Safety Stock; What Is the Role of Safety Stock in an MRP System? How to Calculate Safety Inventory; Comments...

  • How to Calculate Reorder Quantity

    Determine the business's safety stock. ... and Excel is one of the most commonly used tools to perform it. ... How to...

  • How to Calculate a Moving Average in Excel

    It is commonly used with stock prices, ... Microsoft Excel has various mathematical formulas and equations that can be used on rows...

  • How to Calculate CAPM in Excel

    The Capital Access Pricing Model, or CAPM, allows investors to access the risk of a stock to decide if the expected gain...

  • How to Calculate Paper Stock Consistency

    Financial Calculations; Calculate Stock; How to Calculate Paper Stock Consistency; X. Must See: Slide Shows. ... How to Calculate Safety Stock Level.

  • How to Calculate Unsystematic Risk

    Find the beta coefficient for your stock investment. ... of your investment portfolio through applying the following formula: Beta (total) ...

  • How to Calculate Lead Time

    How to Calculate Safety Stock; Tutorial to Calculate Time in Excel; Comments ... How to Calculate Time Cards in Excel. Microsoft Excel...

  • How to Calculate Stock Index

    The other form of calculation is a market-cap-weighted index. ... Formulas Used in the Stock Market to Calculate the Profit of a...

  • How to Calculate EOQ

    How to Calculate With a Free Graphing Calculator; ... Stock Control Methods. ... The safety level of inventory is a specific dollar...

  • How to Calculate a Required Inventory Level

    How to Calculate a Required Inventory Level. Inventory is the lifeblood of retails stores. Through the sale of goods, ... How to...

Related Searches

Read Article

Are You Really Getting A Deal From Discount Stores?

Is DIY in your DNA? Become part of our maker community.
Submit Your Work!