Safety Stock
Safety stock is extra inventory held to cover variation in demand and supplier lead time.
Why it matters for ecommerce brands
Safety stock decides how often you stock out when demand or suppliers surprise you. It is a trade-off between lost sales and cash tied up in extra units, and volatile SKUs with long lead times need the most. For example, a SKU whose daily demand varies by 12 units, with a 25-day lead time and a 95% service target, needs about 99 units of safety stock. Doubling the lead time raises that by about 41%, not 100%, because the buffer grows with the square root of lead time. Recalculate when lead times change.
Origin
Statistical safety stock took shape in the 1950s, when Robert G. Brown's forecasting work for the U.S. Navy tied buffer inventory to measured forecast error and a target service level.
Formula and calculator
Safety stock = Z × σ(daily demand) × √(lead time in days)
Z = 1.65 targets about a 95% in-stock level.
Common questions
- How much safety stock should an ecommerce brand hold?
- Enough to cover the gap between expected and worst-case demand and lead time at your target service level. A common formula multiplies a service-level factor by the standard deviation of demand over the lead time, so volatile SKUs with long lead times need more.
- How do you calculate safety stock?
- A common formula multiplies a service factor Z by the standard deviation of daily demand and the square root of lead time in days. With Z of 1.65, a standard deviation of 12 units, and a 25-day lead time, safety stock is about 99 units.
- What is the difference between safety stock and reorder point?
- Safety stock is the extra buffer. The reorder point is the stock level that triggers a new order, which equals expected demand during the lead time plus safety stock.