What it means
Average sales and average lead times are never exact. Safety stock is the cushion for the bad weeks. A simple and widely used formula:
Safety stock = (maximum daily usage × maximum lead time) − (average daily usage × average lead time)
More advanced versions use the standard deviation of demand and a target service level, but the simple one is a good start for most SMEs.
Example
Kaveri Agencies, wall plugs:
| Figure | Value |
|---|---|
| Average daily sales | 40 boxes |
| Highest daily sales in the last 3 months | 55 boxes |
| Average lead time | 7 days |
| Longest lead time seen | 9 days |
| Safety stock: (55 × 9) − (40 × 7) | 495 − 280 = 215 boxes |
At ₹180 a box, that cushion ties up ₹38,700 of working capital; the owner decides whether the item is worth it.
Common mistakes
- Using the same safety stock for fast and slow items.
- Keeping safety stock on items that expire quickly.
- Never re-checking after the supplier improves its lead time.
In MyRecords
Items carry a safety stock figure, and a production plan can include it when it works out what to make or buy. The item’s suggested reorder levels add half the lead-time use as a cushion, and reorder levels per warehouse then fill the Reorder page.