Vertical Financials
Costs & Inventory

Safety Stock

Definition

Extra inventory held as a buffer against demand spikes or supplier delays. It protects sales and rankings, but every unit of it is cash on a shelf.

Formula

Safety Stock ≈ (Max Daily Sales × Max Lead Time) − (Average Daily Sales × Average Lead Time)

Safety stock is insurance. For a top seller where a stockout costs you rankings for weeks, it is worth paying for. For a slow mover, it is often just cash locked up for no reason.

The right amount depends on how unpredictable your sales and suppliers are, so it should differ product to product. Watch for: the same safety stock rule applied to every SKU, which overfunds slow sellers and underprotects your best ones.

Example

Max 60 units a day × 60 days, minus average 40 units × 45 days, gives 1,800 units of safety stock.

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