What is the general formula for safety stock?

• A. Average usage x lead time + safety margin
• B. Maximum daily usage x lead time
• C. On-hand stock minus safety stock
• D. Annual demand divided by service level

Answer: (C)

Safety stock is the buffer of inventory kept to protect against variability in demand and supplier lead times. It represents extra inventory above the expected need during the lead time, not the amount you currently have on hand or a simple calculation of lead-time demand.

The typical ways to express safety stock are either as a cushion based on variability or as the range between worst-case and average demand during lead time. A common variability-based form is SS = z × σLT, where z corresponds to the desired service level and σLT is the standard deviation of demand during lead time. Another practical estimate is SS ≈ (Max daily usage − Avg daily usage) × lead time, which captures how much more you might need during the lead time than average usage.

Remember, the reorder point uses this buffer: Reorder point = (average daily usage × lead time) + safety stock. The option describing on-hand stock minus safety stock is just the remaining available stock, not the size of the safety stock itself, and the simple product of average usage and lead time is the expected lead-time demand, not the cushion.