Safety stock
In one sentenceAn extra quantity held above expected consumption to cover supplier delays or sudden increases in demand.
Simply put
Safety stock is a cushion that protects you from running out: if the supplier is two days late or sales jump suddenly, you can still sell.
The more volatile the demand or the less reliable the supplier, the more safety stock you need, but holding more than necessary ties up your money.
Worked example
A pharmacy sells 20 boxes of an item per day on average, sales can reach 30 boxes on busy days, and the supplier needs 5 days to deliver.
Maximum daily usage − average30 − 20 = 10 boxes
Lead time5 days
Safety stock = 10 × 550 boxes
Formula: (Maximum daily usage − average daily usage) × lead time in days
Don't confuse it with
Reorder pointSafety stock is part of the reorder point, not a substitute for it.