Safety Stock
Also called: buffer stock
What is Safety Stock?
Safety stock is the buffer held above expected demand to absorb two kinds of surprise: a sales spike, and a supplier arriving late. It is the price of not running out.
Why Safety Stock matters
Safety stock is a deliberate trade between the cost of holding stock and the cost of losing a sale. The right level depends on how variable your demand and lead times actually are, not on how cautious you feel.
Safety Stock formula
Safety stock ≈ (Maximum daily usage × Maximum lead time) − (Average daily usage × Average lead time)
Simple, and enough for most small businesses.
How Safety Stock works in practice
Hold more where the item is critical, cheap to store and long-lived; hold less where it is perishable or expensive. Reviewing which items actually caused stockouts last quarter beats applying a blanket rule.
Frequently asked questions
When holding cost and spoilage risk outweigh the margin on the sales it protects.