PLAYBOOK / STEP 4
Safety stock sizing.
The buffer that protects service level inside a lead time. Higher service costs days of working capital; the right size is the lowest number that holds the service target.
Z-score table
| Service level | Z | Cycle stockouts / year |
|---|---|---|
| 90% | 1.282 | ~5 |
| 95% | 1.645 | ~3 |
| 97% | 1.881 | ~2 |
| 98% | 2.054 | ~1 |
| 99% | 2.326 | <1 |
When lead-time variance dominates
If supplier lead time varies more than demand, swap the formula to Z × daily-demand × √variance(lead time). Distributors with offshore sourcing typically run this variant.
Turnover trade
Each twenty-five basis-point lift in service level adds two to four days of average inventory. At a typical $600,000 average inventory book that costs $1,600 to $3,200 of working capital per twenty-five basis points. The trade against revenue loss from stockouts is industry-specific.
REORDER POINT
Safety stock
49
Reorder point
609
EOQ
Economic order quantity
1184
Step 4 / 6
Safety stock
Pick the lowest service level the customer cohort tolerates, then size accordingly.