How To Figure Out Safety Stock

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Learn how to correctly calculate safety stock in this video. Calculating safety stock correctly for your business will help you save money! Safety stock helps you avoid unnecessary holding costs and avoid revenue loss from stock outs.
All you need to know are these 3 things:
1. Lead time
2. Standard Deviation of Demand
3. Service Level
If you don't understand these 3 things, don't worry. All 3 of these things are explained in this video.
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[@CalonHeindel]

Can you spot the spelling error?

[@queryhsje7514]

It should be Safety instead of Saftey

[@CalonHeindel]

@@queryhsje7514 Haha you got it!

[@mexifrida]

Extremely helpful. Great explanation alongside step by step instructions. Thank you!

[@CalonHeindel]

Glad this video was helpful for you! Appreciate the support!

[@eliananavarro3461]

Clear explanation. Excellent!

[@CalonHeindel]

Thanks!

[@tayaheindel2239]

Safety stock super cool stuff

[@davenorth2903]

Great Video. I've been working on inventory analysis for years and never knew about the normsimv function. Have always used the VLookup function. This is so much easier. Extremely helpful, and thanks for the video.

[@CalonHeindel]

Love to hear this video helped you out in some way! That’s way cool!

[@porporzung526]

😂 a 6:04 😮

[@jackye9392]

Good staff. How about slow moving goods? How to use Poisson function to calculate the safety stock?

[@madinat.3863]

Thanks a lot for the video! This is a really good explanation that helps me a lot. Could you advise if we observe demand on a weekly basis due to some unstable internal processes that don't allow us to do it daily, can I calculate STDEV week to week with the same formula or would this be incorrect? Much appreciated in advance!

[@CalonHeindel]

You can calculate week to week. Everything just needs to be in like terms.

[@rafisalhamdi8735]

Hi, Calon. It's great to see your video, but could you give me the references for the formulas you used?

[@BlakeC341]

In university it's taught as: ss = ROP - D x L Where ss is Safey Inventory ROP is Reorder Point And D x L is Expected demand during lead time

[@CalonHeindel]

There are two main formulas for calculating safety stock. The method I used in this video is used when demand is less certain, which I think is fair to assume. The equation you mentioned is the other main formula used. In the university I went to the formula I used was taught as more accurate. It was also the formula I used in my supply chain job.

[@bastienberthoud3449]

What would be the calculation if we have weekly sales or monthly ?

[@alexmason4349]

How would you calculate safety stock after a downstream process in the same value stream? Would you calculate lead time from the beginning or from the previous safety stock?

[@queryhsje7514]

Thanks for the video. I was wondering why if our daily needs below 10 for example (Day 1 = 9, Day 2 = 8, Day 3 = 7, Day 4 = 10, and so on....), safety stock would be 7 with the lead time of 7 days. If the result of the safety stock is 7, isn't it too late to reorder at the point of the safety stock of 7? Thanks

[@CalonHeindel]

Right so since your standard deviation is so small you don’t need as much safety stock. Generally you would order before you reached safety stock levels, so it wouldn’t be too late. You’d get new inventory before that. I have another video on Re-order point and economic order quantity, that would explain that for you.

[@queryhsje7514]

@@CalonHeindel Thanks for the explanation

[@spat21]

Please provide the formula for determining when to reorder the stock? I understood about the quantity below which order to be placed but how to calculate the number of days in which new order to be placed?

[@CalonHeindel]

I also have a video explaining how to calculate the reorder point. You can search reorder point and find that video on my channel

[@spat21]

@@CalonHeindel I already watched that video but I am interested in knowing the number of days formula based on current stock for reordering purpose. In your video only quantity calculation is given

[@CalonHeindel]

@@spat21 that all depends on your supplier. If you order materials and it takes on avg 5 days to get to you, then your number would be 5. It just depends how long that takes.

[@HLYforever91]

I totally get the part where u multiply Zscore with standard dev. But i dont understand the logic why u have to multiply ot with square root of lead time? Can you explain it? Thank you so much

[@CalonHeindel]

So there are two main formulas used when calculating safety stock. The more accurate in my opinion is the "kings method". This is the method shown in the video. This is used when demand is less certain, which I think is fair to assume on most occasions.

[@CalonHeindel]

I honestly dont remember how the formula is derived 100%. This is what I was taught at the university I went to and what I use in my supply chain job.

[@HLYforever91]

@@CalonHeindel thank you. Probably multiplying it with square root of lead time makes it more conservative 😂

[@CalonHeindel]

@@HLYforever91 Makes sense to me hahaha

[@abdulaziz1982]

What is the logic behind square root of Lead time?

[@CalonHeindel]

This accounts for standard error or standard deviation.

[@abdulaziz1982]

@@CalonHeindel can you please explain in detail. Thanks

[@poorandstupid]

How do you calculate probability of stockout?

[@CalonHeindel]

The common method to do this is to take total number of stock outs divided by the number of demand requests, then multiplied by 100

[@user-nd9wx7om5z]

Hi, if this was in weeks, would the LT be 1 rather than 7?

[@CalonHeindel]

It all needs to be in like terms. Just know if you use weeks, all values and calculations should also be in weeks

[@user-nd9wx7om5z]

@@CalonHeindel thanks for the reply :) so what figure would I use for the LT if this is in weeks and an item has a 9 day LT? im looking at somthing thats square root of the PC/T and is confusing me

[@Katinaboxx]

Why does my NORMSINV always return negative?

[@CalonHeindel]

Is the number in the formula formatted as a percentage? If you put your service level less than 50% it’ll be negative. You shouldn’t aim for a service level that low normally.

[@christopherfunk7140]

Is it me or is the volume on this super low?

[@lukman7786]

😘