Safety Stock & Reorder Point Calculator
Calculate how much buffer inventory you need to protect against stockouts during lead time. Estimate safety stock and reorder point based on demand variability and your target service level.
Estimate Safety Stock and Reorder Point
Enter your demand variability, lead time, and target service level to calculate how much buffer inventory you need to protect against stockouts during replenishment.
Quick Start:
- Choose an input method (daily demand or direct lead time stats)
- Select your target service level (e.g., 95%)
- Enter demand statistics and lead time
- Click calculate to see your safety stock and reorder point
Start by filling the form above
Understanding Safety Stock and Reorder Points
What is Safety Stock?
Safety stock is the extra inventory a business holds to protect against uncertainty in demand or supply during the lead time. It acts as a buffer that helps prevent stockouts when actual demand exceeds the forecast or when supplier deliveries are delayed.
The amount of safety stock you need depends on three key factors: the variability of demand during lead time, the lead time itself, and your target service level (how often you want to avoid stockouts).
What is a Reorder Point?
The reorder point (ROP) is the inventory level at which you should place a new order to replenish stock. When your inventory drops to or below this level, it triggers a replenishment order.
The classic formula is:
This ensures that by the time your order arrives, you still have enough inventory (safety stock) to cover any unexpected demand spikes.
How Safety Stock Depends on Variability and Service Level
The standard formula for safety stock under the normal distribution assumption is:
Where:
- Z is the standard normal Z-value corresponding to your target service level (e.g., Z ≈ 1.65 for 95%)
- σ_LT is the standard deviation of demand during lead time
Higher service levels require higher Z values, which increases safety stock exponentially. For example, going from 95% to 99% service level roughly doubles the required safety stock.
Demand During Lead Time and the Normal Approximation
If you have daily demand statistics and a fixed lead time, you can estimate demand during lead time as:
- Mean demand during lead time = Average daily demand × Lead time (days)
- Standard deviation during lead time = Daily std dev × √(Lead time)
This formula assumes daily demands are independent and identically distributed. The square root relationship comes from the variance addition property: when you add L independent random variables, their variances add, so σ_LT = σ_daily × √L.
Limitations of This Simple Safety Stock Model
This tool uses a simplified model with important limitations:
- Normal distribution assumption: Real demand may be skewed, intermittent, or follow other distributions
- Constant lead time: The model does not account for lead time variability
- Cycle service level: This measures probability of no stockout per cycle, not fill rate (fraction of demand satisfied)
- Single item: Does not consider multi-item interactions, capacity constraints, or budget limits
- Continuous review: Periodic review systems require different formulas
Common Service Level to Z-Value Mappings
| Service Level | Z Value | Interpretation |
|---|---|---|
| 80% | 0.84 | Stock out 20% of cycles |
| 90% | 1.28 | Stock out 10% of cycles |
| 95% | 1.65 | Stock out 5% of cycles |
| 97.5% | 1.96 | Stock out 2.5% of cycles |
| 99% | 2.33 | Stock out 1% of cycles |
| 99.9% | 3.09 | Stock out 0.1% of cycles |
Practical Considerations
When setting safety stock levels in practice, consider:
- Cost tradeoffs: Higher safety stock means higher holding costs but fewer stockouts
- Product criticality: Critical items may warrant higher service levels
- Demand patterns: Seasonal, trending, or intermittent demand requires special treatment
- Supplier reliability: Unreliable suppliers may require additional buffer
- Review frequency: More frequent reviews can reduce safety stock needs
Frequently Asked Questions
Safety stock is the buffer inventory held specifically to protect against uncertainty—variability in demand or supply delays. It's pure protection against the unexpected.
Reorder point is the inventory level that triggers a new order. It includes both the expected demand during lead time AND the safety stock. So: Reorder Point = Expected Lead Time Demand + Safety Stock.
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