In brief
Safety stock is an inventory buffer that absorbs fluctuations in consumption and replenishment lead time and is intended to prevent stockouts.
Contents
What is Safety stock?
Safety stock, also known as buffer stock or minimum stock, is not normally consumed. It only comes into play when more parts are needed than planned or a delivery takes longer than expected. It forms part of the reorder point and lies below it.
There are simple and statistical approaches to calculating it. A simple method is a fixed daily requirement multiplied by a number of buffer days, or the difference between maximum and average consumption during the lead time. Statistical methods take into account the variability of consumption and lead time as well as a target service level, i.e. the probability with which a requirement can be met from stock. A higher service level requires disproportionately more stock.
In spare parts management, safety stock is a trade-off between tied-up capital and the risk of failure. Storage costs, ageing and administrative effort are weighed against the costs of downtime. For critical parts with long lead times, the buffer is therefore set higher than for standard parts that can be sourced quickly.
In practice: maintenance and procurement
Safety stocks should be differentiated by criticality and replenishment lead time rather than set across the board. A regular review shows whether buffers need adjusting because of changed lead times or can be reduced because equipment has been retired.
Synonyms and abbreviations: buffer stock · minimum stock · reserve stock · safety inventory · iron stock
Frequently asked questions
How do you calculate safety stock?
A simple approach multiplies average daily consumption by a fixed number of buffer days. Statistical methods use the standard deviation of consumption and lead time together with a safety factor derived from the target service level. Which approach fits depends on the available data and the consumption pattern.
What does service level mean in relation to safety stock?
The service level indicates the probability or the proportion with which requirements are met directly from stock. A higher service level reduces the risk of stockouts but requires more stock. The last few percentage points are particularly expensive, because the buffer grows disproportionately.
Is a high safety stock always a good idea?
No. Stock ties up capital, occupies storage space and can age, for example elastomers or electronics. A large buffer pays off above all for parts whose absence causes high downtime costs and which can only be procured with a long lead time. For readily available standard parts, a small buffer is usually sufficient.