Safety Stock: the four formulas and when to use each

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Safety stock is where most inventory policies quietly go wrong. The formula you pick has to match the data you actually have.

The four methods

  1. Fixed days of supply — simplest, ignores variability. Fine for stable, low-value items.
  2. Average-max — uses observed peaks. Good when you have history but no clean statistics.
  3. Service-level (single variability) — assumes lead time is stable and demand varies.
  4. Dual variability — both demand and lead time vary. The realistic case for imported goods.

Exam note: CPIM and CSCP both test the service-level method and the meaning of the service factor.

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