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How to calculate safety stock of your business

Author : , Founder and CEO of Inventory Software Services
Published : 2018-09-03 03:13:14 Last Modified :
safety stock

What is safety stock:

Safety stock is a quantity of any items of products to protect empty stock lest it's possible to provide any items of products in any time according to business demands. It's may vary business to business or products to products according to demands.

How to calculate your safety stock:

Safety stock is the stock quantity of a business to full fill the requirement for the lead time. Businesses hold safety stock to protect empty stock.

Safety stock formula:

Safety Stock = (Maximum Daily Usage ? Average Daily Usage) × Lead Time

Lead time = Supplier takes time in ordering the items.

Example

Suppose A is a business. For products a maximum products uses in 100, average daily usage is 50 and lead time 15 days.

Than, Safety Stock=(100-50)×15=750 Units.

Reorder Level = Safety Stock + Average Daily Usage × Lead Time

Reorder Level = 500 units + 50 units×15 = 1250 units.

Economic Order Quantity = SQRT(2 ×Annual Demand ×Unit Ordering Cost/Unit Carrying Cost).