How it is calculated
Z = Inverse normal of the service level (95% → 1.645)
σ = √(Lead time × σ_demand² + Avg demand² × σ_lead time²)
Safety stock = Z × σ
Reorder point = Avg daily demand × Lead time + Safety stock
Worked example
With an average demand of 100 units a day (std. dev. 20), a 9-day lead time and a 95% service level, safety stock is 1.645 × 20 × √9 ≈ 99 units and the reorder point is 900 + 99 ≈ 999 units.
Practical tips
- Going from 95% to 99% service level increases safety stock by about 41%. Reserve high levels for critical items.
- Use the same time unit everywhere: if demand is daily, lead time must be in days.
- If supplier lead times vary, enter their standard deviation. It is often the biggest driver of safety stock.
Frequently asked questions
What service level should I use?
Many companies use 95% as a default, 98–99% for critical or high-margin items and 90% for low-value items. It is the probability of not running out during each replenishment cycle.
How do I get the standard deviation of demand?
Take your daily sales or consumption for the last 3–6 months and use STDEV.S in Excel or Google Sheets. Use the same unit (days or weeks) as your lead time.
What if my lead time is in weeks?
Then enter weekly average demand and weekly standard deviation too. The formula works with any time unit as long as it is consistent.