Why safety stock matters
Forecasts miss and shipments slip; the only question is what happens when they do. The buffer converts those misses into a non-event, at the price of capital sitting in reserve. Sizing it is the trade between stockout cost and carrying cost.
What sizes the buffer
- Demand variability: steadier sellers need less
- Lead time length and, especially, its variability
- The service level you’re committing to
- The item’s margin and stockout consequences
Questions
Should every SKU carry safety stock?
No: buffer the bestsellers and the irreplaceables generously, the long tail thinly or not at all. Uniform buffers overprotect the trivial and underprotect the vital.
How is safety stock calculated?
From the variability of demand and lead time against a chosen service level; standard formulas exist in any inventory tool. The inputs matter more than the formula: garbage variability data sizes garbage buffers.