How safety stock is calculated
When both demand and lead time vary, the standard formula is:
Safety stock = Z × √(L × σd² + d² × σL²)
- Z is the z-score for your service level (1.645 for 95%).
- L is the average lead time in days, and σL its standard deviation.
- d is average daily demand, and σd its standard deviation.
If your supplier always delivers on time, σL is zero and the formula shrinks to Z × σd × √L, the version most textbooks start with.
The reorder point then adds the stock you expect to sell while you wait: Reorder point = d × L + safety stock.
Worked example
A shop sells an average of 40 units a day, with a daily standard deviation of 12. Orders take 10 days to arrive, give or take 2 days, and the target is a 95% service level (Z = 1.645).
- Variation in lead-time demand: √(10 × 12² + 40² × 2²) = √(1,440 + 6,400) = 88.5 units.
- Safety stock: 1.645 × 88.5 = 145.6, rounded up to 146 units, about 3.6 days of sales.
- Reorder point: 40 × 10 + 145.6 = 545.6, rounded up to 546 units.
Most of the risk here comes from the supplier: late deliveries account for 6,400 of the 7,840. If lead time varied by 1 day instead of 2, safety stock would fall to 91 units. A more reliable supplier is often cheaper than more stock.
Choosing a service level
The service level is the chance of not running out during one replenishment cycle. Each step up costs more stock than the last: in the example above, moving from 95% to 99% raises Z from 1.645 to 2.326 and safety stock from 146 to 206 units.
A common split is 98–99% for best sellers, where a stockout loses the customer, 95% for the middle of the range, and 90% for slow movers that are cheap to expedite.
Where the inputs come from
Take three to six months of daily sales for the product. The average is d and the standard deviation is σd (STDEV in Excel or Google Sheets). For lead time, list your last 10 to 20 deliveries from that supplier and take the average and standard deviation of the days each one took.
Use units, not revenue, and keep returns out of demand. Seasonal products need a fresh calculation as the season changes, because last quarter's variation is not this quarter's.
Frequently asked questions
What is safety stock?
Safety stock is inventory held on top of expected demand to absorb unexpected spikes in sales and late deliveries. It is the buffer that keeps you in stock while a replacement order is on its way.
What is a good service level for safety stock?
It depends on what a stockout costs you. 95% is a common default. Fast movers and items where running out loses the customer often justify 98–99%, while slow or cheap-to-expedite items can sit at 90%.
What is the difference between safety stock and the reorder point?
Safety stock is the buffer. The reorder point is the stock level that triggers a new order: the demand you expect during the lead time plus the safety stock.
Can safety stock be too high?
Yes. Every unit ties up cash and shelf space, and the cost climbs quickly at high service levels. If a calculation gives more than a few weeks of cover, check the demand variation figure and whether the product is seasonal.
How often should I recalculate safety stock?
Whenever demand or supplier reliability changes noticeably: at least monthly for fast movers and at every season change. Arkenso Inventory Forecasting recalculates it for every SKU from your sales history.
Last reviewed 2026-10-17.