Safety stock helps us prevent stock outs, and it is an input into the order calculation. It is important to know what factors are involved in calculating your safety stock level. This article aims to describe the factors that pose a risk to our inventory levels, and therefore influence the level of safety stock required.

Having a high target fill rate means the percentage you are willing to be out of stock is very low. Therefore, having a high target fill rate will increase your safety stock.

The stock level gets close to zero much quicker with a short RC than a long one, because you’re ordering and consuming stock more frequently. To mitigate the risk of this item stocking out, more safety stock will be needed. To read more about this, refer to article Long vs short replenishment cycles.

If stock is required unexpectedly (perhaps due to a demand spike or damages), there is no cost-effective way of bringing in more stock quickly. For that reason, more safety stock will be required for items with a long lead time.

If a supplier short delivers or does not deliver on time, the item will not have the planned level of stock on hand which may mean the item will become out of stock. More safety stock will be required to offset the risk.

This poses a risk because this means that sales exceed the forecast i.e. we sell more stock that we planned. This means more stock is consumed, which can lead to out of stocks. Since this poses a risk to our inventory level, we will need to keep more safety stock.

To quickly view the relationship between safety stock and target fill rate, replenishment cycle and lead time, you can click on the three dots on the top right of the Safety stock panel. This will reveal three simple graphs showing this movement of safety stock based on the movement of the policy.

You might also be interested in searching the following: