Formula
SS = Z × σ(D) × √(Lead Time)
When to Use
Use Safety Stock when demand or lead time varies and you need a buffer to avoid stockouts. The target service level (expressed as a Z-score) controls the tradeoff: a higher service level means less risk of running out, at the cost of holding more inventory.
Z-Score Reference
| Service Level | Z-Score | Risk of Stockout |
|---|---|---|
| 50% | 0.00 | 50% (no buffer) |
| 90% | 1.28 | 10% |
| 95% | 1.65 | 5% |
| 97% | 1.88 | 3% |
| 99% | 2.33 | 1% |
| 99.9% | 3.09 | 0.1% |
Example
Scenario: A grocery store with variable demand
Daily demand standard deviation: 5 units
Supplier lead time: 7 days
Target service level: 95% (Z-score = 1.65)
Calculation:
SS = 1.65 × 5 × √7
SS = 1.65 × 5 × 2.6458
SS ≈ 21.83 units
Keep approximately 22 units in safety stock to handle demand spikes during the 7-day lead time and meet the 95% service level.