6. Determining safety stock

Safety stock for independent items

As soon as certain parameters (demand, delivery time) behave randomly, there's a risk of stock-outs. To prevent this risk, the manager sets aside a safety stock.

Safety stock depends on :

• variability of demand during the delivery period ;

• frequency of replenishment ;

• the desired service level ;

• the length of the delay.

The safety stock calculation uses the Gaussian distribution applied to lead-time and consumption variabilities.

• To guard against a (one-sided) 2.5% risk of a stock shortage due to consumption variability, a safety stock equal to 1.96 σ (σ: standard...