What is safety stock?

Example

A hardware shop sells an average of 10 padlocks a day. The supplier's lead time is usually 6 days but has been 9. In its busiest weeks it sells 14 a day.

Worst case over lead time: 14 x 9 = 126. Average case: 10 x 6 = 60. Safety stock = 126 - 60 = 66 padlocks.

That is a lot of stock to hold for rare conditions, so many shops choose a middle value such as 30 and accept the occasional stockout.

In Atta

Safety stock sits inside the reorder point. If you set a point of 90 for padlocks, that already includes the buffer, and when on-hand falls to 90 Atta opens a restock request.

The stock outlook reads on-hand from the ledger, the measured rate of use and the supplier's quoted lead time. It estimates when an item runs out in a straight line. Counts are written to the ledger as the difference from what was expected, so the buffer you think you hold is the one the ledger shows.

Cost of holding it

Extra stock ties up cash and shelf space. At $4 a padlock, 66 units is $264 sitting on a shelf. If that stock turns slowly, a shorter lead time from the supplier can be cheaper than a larger buffer.