Safety stock is inventory held because the future is uncertain. That uncertainty can come from customer demand, supplier lead times, or both.
Why a fixed percentage is weak
“Carry 20% extra” treats stable and volatile SKUs as if they have the same risk. A better policy responds to the actual variability in demand and replenishment.
Safety stock and reorder point are different
The reorder point answers when to order. A common conceptual structure is:
The exact model should reflect the business, data quality, service goals and whether demand or lead time behaves in a way that makes standard assumptions reasonable.
Service levels create tradeoffs
Higher safety stock can reduce stockout risk, but it also consumes working capital and carrying cost. The right target may vary by SKU based on margin, criticality, substitution options and customer expectations.
Backtest before changing
One of the safest ways to evaluate a proposed policy is to replay it against historical demand or simulate plausible future conditions. This provides evidence about stockouts, average inventory and service performance before the policy becomes operational.
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