Glossary
Inventory & availability
What is safety stock?
The buffer held to cover the gap between forecast and actual demand, and variability in supply.
Why it matters: It sets the trade-off between availability and holding cost.
How it's worked out: A widely used form is safety stock = Z × σ, where Z is the service factor (1.28 for 90% service, 1.64 for 95%, 2.33 for 99%) and σ is the standard deviation of demand over the lead time. The more demand swings and the longer the lead time, the more buffer you need.