Another key component of inventory control is establishing safety stock inventory. This article will define safety stock and show you how to calculate it with a simple formula.
Safety stock inventory, also referred to as buffer stock, is extra inventory you keep on hand just in case something unexpected happens. After all, even though your vendors typically deliver on schedule, disruptions do occur. From hurricanes to traffic jams to labor strikes, there are tons of reasons why a much-needed shipment could be delayed. Maintaining buffer stock can protect you from running out of product. Safety stock also keeps your customers satisfied should demand for a product rise unexpectedly. For example, during the beginning of the coronavirus pandemic, many retailers experienced shortages of products like toilet paper, hand soap and yeast. Those who maintained emergency stock of these items enjoyed the most customer satisfaction and boosted revenue during uncertain economic times. Safety Stock Definition
How do I calculate safety stock?
To calculate safety stock, use this formula: (maximum daily usage x maximum lead time in days) – (average daily usage x average lead time in days)
You’ll need to gather four key numbers from your inventory reports to calculate safety stock:
- Maximum daily usage
- Average daily usage
- Maximum lead time
- Average lead time
Daily usage is exactly what it sounds like. How much of a product you use in a day.
Lead time is the number of days it takes for your order to arrive once you’ve placed it. You can calculate lead time by adding your supply delay and reordering delay.
To clarify, reordering delay refers to any waiting time to place your order. Perhaps you place your orders on Tuesdays, but your supplier processes orders on Fridays. That’s a three-day reordering delay.
Supply delay is how long it takes your order to arrive once it’s been accepted by the provider.
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How Sortly can help with safety stock
Sortly is a modern inventory management solution that can help you take control of your inventory in an afternoon. Sortly takes the guesswork out of calculating safety stock by centralizing and streamlining all your inventory data—it’s easy to see what is in stock and how much needs to be re-ordered. Sortly ensures your entire team is on the same page and that your inventory orders are 100% accurate. You can also set low stock alerts to remind you when your inventory falls below a certain threshold, which means you’ll never dip below your safety stock.
Sortly empowers you to organize, track, and manage your inventory from any device, in any location. That means you can update inventory on the job, scan barcodes from your smartphone, and track your items as they move across your business in real time. Better inventory management means you can work more efficiently, plan for jobs better, and serve your customers to their highest satisfaction.
If your company would benefit from improved inventory management, try Sortly free for 14 days.
