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Inventory

Safety Stock

A buffer of extra inventory held to protect against demand or supply variability.

Safety stock is the cushion of stock you keep above expected demand to avoid stockouts when sales spike or a supplier is late. It absorbs the uncertainty in both demand and lead time.

Set it too low and you risk lost sales; set it too high and you tie up cash and warehouse space. The right level balances service level against carrying cost.

Formula

Safety stock = Z × σ_LT

Z is the service-level factor; σ_LT is the standard deviation of demand over lead time.

See it in AWRA OpsHub

Inventory Balancing & Replenishment