How to use it
- Choose the safety stock method.
- Enter average daily demand and average lead time in days.
- For the service-level method enter the standard deviation of daily demand and pick a service level; for max-min enter the maximum daily demand and the longest lead time.
- Read the reorder point, the safety stock and the demand during the lead time.
The formulas
- Demand during lead time = average daily demand × lead time.
- Service level: safety stock = z × σ × √L.
- Max-min: safety stock = max daily demand × max lead time − average daily demand × average lead time.
- Reorder point = demand during lead time + safety stock, rounded up to a whole unit.
| Service level | z |
|---|---|
| 90 % | 1.2816 |
| 95 % | 1.6449 |
| 97 % | 1.8808 |
| 98 % | 2.0537 |
| 99 % | 2.3263 |
| 99.5 % | 2.5758 |
| 99.9 % | 3.0902 |
Worked example
Average sales 20 units a day with a standard deviation of 5, lead time 9 days, 95 % service level:
- demand during lead time 20 × 9 = 180;
- safety stock 1.6449 × 5 × √9 = 1.6449 × 15 = 24.7;
- reorder point 180 + 24.7 = 204.7, rounded up to 205 units.
With max-min, if the busiest day was 30 units and the longest delivery 12 days: 30 × 12 − 20 × 9 = 180 safety stock, reorder point 360 units.
Tips
- A higher service level costs more stock: going from 95 % to 99 % raises safety stock by about 40 % here.
- Measure demand and lead time in the same unit (days or weeks).
- Pair it with the EOQ calculator: the reorder point says when, EOQ says how much.