About

Inventory management balances two risks: the cost of holding excess capital and the cost of lost sales due to stockouts. This calculator determines the Safety Stock-the buffer inventory held to mitigate the risk of demand spikes or supply chain delays.

The tool offers two calculation methods. The Heuristic Method uses the industry-standard "Max-Average" formula, ideal for general inventory with variable lead times. The Statistical Method (Z-Score) is designed for high-volume SKUs where service level targets (e.g., 99% availability) are critical. It calculates deviations based on service level probability, providing a mathematically rigorous reorder point.

Formulas

1. Standard Heuristic Formula:

SS = (MaxUsage × MaxLead) − (AvgUsage × AvgLead)

2. Statistical Formula (with Service Level):

SS = Z × √Lσ_D² + D²σ_L²

Where Z is the Z-score, L is Avg Lead Time, D is Avg Demand, σ_D is Demand Std Dev, and σ_L is Lead Time Std Dev.

Reference Data

Service Level (%)	Z-Score (σ)	Stockout Risk	Application
90.0%	1.28	10%	Low margin items, non-critical parts.
95.0%	1.65	5%	Standard retail inventory, general merchandise.
97.5%	1.96	2.5%	High turnover items, core products.
99.0%	2.33	1%	Critical components, pharmaceuticals, "A" Class SKUs.
99.9%	3.09	0.1%	Life-safety equipment, shutdown-critical spares.

Frequently Asked Questions

The Reorder Point is the specific level of stock at which a new order should be placed. It is calculated as: (Average Daily Usage × Average Lead Time) + Safety Stock.

Use the Max-Average method when you lack detailed historical data for standard deviation calculations. It is a conservative, robust method that covers most common supply chain variances without complex statistics.

If you don't have this data from your ERP, you can approximate it. For Demand Std Dev, take the square root of the variance in your daily sales over 30 days. For Lead Time, calculate the variance in delivery days from your supplier.