Cash & working capital
Safety Stock
Formula reviewed by Tahir Asif, CMA
Extra inventory held as a buffer against demand or supply variability, beyond what forecasted demand alone requires.
Safety stock is the cushion of extra inventory kept on hand to absorb unexpected demand spikes or supplier delays, so a business doesn't stock out during the lead time it takes to reorder.
It can be calculated with a simple max/min rule of thumb or with a statistical (z-score) method that accounts for demand variability and desired service level — the statistical method generally produces a more precise, defensible number for a business with real demand data to work from.
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