Enter the max daily usage, max lead time, average daily usage, and average lead time into the calculator to determine the safety stock
Safety Stock Formula
The following formula is used to calculate the safety stock of a product.
S = (MU*ML) – (AU*AL)
- Where S is the safety stock
- MU is the maximum daily usage
- ML is the maximum lead time
- AU is the average daily usage
- AL is the average lead time
Safety Stock Definition
Safety stock is defined as the total amount of stock a company should have on hand to handle any sudden increase in demand.
Safety Stock Example
How to calculate safety stock?
- First, determine the maximum daily usage.
This should be the large daily usage the product has seen over its lifetime.
- Next, determine the maximum lead time.
This will be the longest time it’s taken the product to be delivered to your warehouse, or the longest time it took to produce if it’s being made in-house.
- Next, determine the average usage.
This will be the average daily usage over the most recent time period.
- Nest, determine the average lead time.
As before, calculate the average lead time to receive or produce the product.
- Finally, calculate the safety stock.
Using the formula above, calculate the safety stock you require.
Safety stock is the number of goods or products a company should have on hand at all times to mitigate any rapid changes in demand of a product?
The equation above is the standard formula for calculating your safety stock levels, but your true levels should be based on many factors like cash flow, past demand issues, etc.