The 4 Biggest Mistakes When Using the Safety Stock Formula

The usual safety stock formula Ss = z sigma sqrt(L) is based on multiple assumptions and shortcuts often not respected in real supply chains.

Let's review these shortcomings one by one.

The maze of inventory optimization. Credit.

Safety Stocks in the Supply Chain

In a nutshell, you need safety stock to protect your supply chain against supply and demand variation.

Extract from my inventory optimization training

A Framework for Inventory Optimization

As you can see on the graph above, the safety stock formula takes both supply and demand into account: you have the square root of the lead time (plus the review period!) on one end and the demand standard deviation on the other.