Formula for calculating safety stock
There are different formulas for calculating the safety stock required by a company. Since they involve the standard deviation, it is necessary to introduce complex calculations that cannot always be performed directly. However, there are other simpler formulas for calculating the safety stock of a warehouse, such as the following:
SS = (MDT - LT) x AD
SS: is the safety stock
MDP: is the maximum delivery time in the event of a problem or delay, also known as maximum guaranteed delivery time
LT: this is the usual lead time for receiving orders from a supplier.
AD: is the average demand under normal conditions for the commodity under analysis.
Its interpretation is simple. For example, imagine a company whose usual delivery time is 10 days and its maximum delivery time is 50 days. If in a given period of time, its demand is 500 units per day, the safety stock must be 2000 units.