GIFSQ Tools · Module 18 — Manufacturing, Costing & Supply Chain · Tool 351 of 500
Size the buffer that keeps you in stock: safety stock from the service level you want, the day-to-day variation in demand, and the supplier lead time — the standard statistical formula, with the reorder point to go with it.
Try sample values — fills the form with the worked example below.
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Safety stock (units)
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Reorder point (units)
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Demand during lead time
Equation: Safety stock = z × σd × √(lead time). Reorder point = average daily demand × lead time + safety stock. Demand during lead time = average daily demand × lead time.
Method: Statistical safety stock (standard inventory theory): demand over the lead time varies with standard deviation σd × √(lead time), and the z factor sets how much of that variation the buffer covers. z = 1.65 covers about 95% of cases, z = 2.33 about 99%.
Assumptions: daily demand is approximately normally distributed and independent day to day; the lead time is fixed; the standard deviation is measured from real demand history.
Limitations: a higher service level costs more stock — 99% costs roughly 40% more buffer than 95%; the formula covers demand variation only, not lead-time variation or supply failure.
Rounding: safety stock and reorder point as whole units; intermediates unrounded.
This is a calculation aid, not a laboratory report — confirm against your accredited method before citing a value.
Method: Statistical safety stock (standard inventory theory): demand over the lead time varies with standard deviation σd × √(lead time), and the z factor sets how much of that variation the buffer covers. z = 1.65 covers about 95% of cases, z = 2.33 about 99%.
Assumptions: daily demand is approximately normally distributed and independent day to day; the lead time is fixed; the standard deviation is measured from real demand history.
Limitations: a higher service level costs more stock — 99% costs roughly 40% more buffer than 95%; the formula covers demand variation only, not lead-time variation or supply failure.
Rounding: safety stock and reorder point as whole units; intermediates unrounded.
This is a calculation aid, not a laboratory report — confirm against your accredited method before citing a value.
Worked example: z = 1.65 (95% service), daily demand SD 20 units, lead time 9 days, average demand 100/day: safety stock = 1.65 × 20 × 3 = 99 units; reorder point = 900 + 99 = 999 units.
Enter values above to see results.
Measure the standard deviation from at least a month of daily demand — a guess here makes the whole buffer a guess. Tool 351 of 500 — GIFSQ
