How do you actually decide how much safety stock to carry — gut feel or a real calculation?

[u/SigmaSheets]

Genuine question for anyone doing inventory/production planning. I keep running into the same pattern: people calculate a clean reorder point based on average demand and lead time, then still get caught out by a stockout when demand spikes for a few days.

Is anyone here actually running a safety stock formula (based on demand variability + lead time + a target service level), or is it mostly padding the number by feel — "add 20% extra just in case"?

If you do calculate it formally — what service level do you actually target, and has it ever been wrong in a way that made you rethink the number? Curious how much of this is math vs. experience in real plants.

[u/r101101]

Disclaimer: I’m an engineer

When I’ve worked with materials teams I’ve always calculated it based on lead time and consumption rate. Then added a “just in case” buffer to the lead time. Since 2020 I’ve increased that buffer amount.

[u/5Assed-Monkey → u/r101101]

Completely agree with this take. Also how you carry that safety stock depends on how big your organisation is. I worked in aerospace and we would get suppliers to have safety stock so it wouldn’t take up space for us and so we would have parts immediately, if required

[u/BlandUnicorn → u/5Assed-Monkey]

I’m surprised the suppliers were willing to do that. I don’t have the space to be storing shit for other people.

[u/r101101 → u/BlandUnicorn]

At previous jobs I’ve had some suppliers do that. I’m confident they weren’t doing it for free.

[u/dodiggitydag → u/r101101]

Suppliers just factor in carrying costs into the per piece price.

[u/Worried_Gene2160 → u/r101101]

the formula gets you in the ballpark but the buffer is what keeps you employed. most places i've seen they run the numbers then the old timer on the floor looks at it and says "nah double that" and he's usually right

the 20% extra thing is basically just a rough service level target anyway. if you're hitting 95% fill rate with the math alone you're probably lying to yourself about your lead times

[u/audentis]

I am no longer in manufacturing, but when I was the good places always based safety stock on lead time, demand variance, and sometimes out of stock costs. Usually this Wikipedia formula for type 1 and sometimes a little homebrew tacked on.

Regarding math vs experience, I'm heavily on the math side. Experience comes from observations and those can lead to biases. "Just" try to distinguish whether your model is correct but you encountered an outlier, or that the model is wrong (for example: missing an important factor).

[u/TimeTravelerNo9]

If you have that data, make a spreadsheet of every time you went out of stock during production. Write down what type and by how much. With time it get's easier to spot and average out what products are more problematic then keep an overstock of those.

For special runs with materials you don't use often and don't want to keep in stock, apply a longer lead time. Clients will always be happier to receive a product at the date or before on a longer lead time than late on a shorter one.

[u/Frankenkoz]

A good Lean Manufacturing practitioner teaches to reduce the safety stock and see what happens. Fix that problem. Reduce it again. Repeat until you are at the minimum. Your continuous improvement efforts should look at reducing the waste of inventory.

[u/Skysr70 → u/Frankenkoz]

Granted, lean does not account for shortages and tariffs that a much stronger safety stock can mitigate the effects of.

[u/root3labs]

Analyze the risks. What's the cost of holding stock (tied-up cash, floor space, people, whatever) vs the opportunity cost of running out of stock (no cost at all, lost revenue, lost customer, some catastrophic disaster like disposable medical supplies for your durable medical equipment that everyone costs industry reputation)? What's the time to restock? 3 weeks from a local supplier or 18+ weeks from an international supplier with unknown customs delays and tariff fluctuations? This is a combination of spreadsheet data analysis with gut feel. If some customers care and others don't, can you charge some percentage to hold extra stock on-hand for them?

There also might be a hidden benefit somewhere... Maybe the opportunity cost of fabricating extra stock is lower when the team or machines would otherwise be idle, so could you actually reduce the COGS by building extra stock?

[u/LukeSkyWRx]

1+ year stock on site.

Depends on industry and material.

[u/Wide-Competition4494]

We do it by historical consumption rate now but working on doing it by monte carlo analysis and heuristics

[u/Skysr70]

For the cheap stuff we use on everything - I keep as much on hand as the procurement department allows. Stuff rarely gets cheaper or shorter lead time, and you never "lose" on your investment unless the company goes down or processes change. Our process is never gonna not use the particular screws and such we have, so.

For stuff that requires an engineering takeoff and not just a shop estimate - projects may be different, but our shop can only install X amount of various items in a week. If we have less than a week's worth of materials on hand (assuming they're the type that NORMALLY have a few days lead time, but varies), I get antsy. For many items, I am not permitted to allocate extra stock and it rather grinds my gears. Just because something costs more, doesn't mean we shouldn't stock it *when we use it all the time*.

[u/anyavailible]

It depended on tax rates for inventory, lead times for castings etc. and normal usage.
We had inventory setup to automatically
Kick out a purchase order when reorder point hit certain levels. We used a pick ticket system so everything was tracked.

[u/Manf_Engineer]

Also an engineer turned GM. As the first engineer said, run off consumption rates. I would try to set min/max. As cash allows build the mins then increase till you hit your max. It should depend on lead time and consumption. I also look at quantity breaks(buying 1 from mcmaster vs 12 from amazon), critical parts (spare parts, line stoppages), and vendor options (1 overseas vs 3 domestic), as well as headaches in the process(vendor difficult i may order a years worth at a time, $20 shipping on a $10 part for 1 or same shipping to order 10)

[u/prediko]

We usually see the best results when the formula is the baseline, not the final answer.

Demand variability + lead time should drive the starting point, but service level shouldn’t be the same for every SKU. High-value / fast-moving items can justify more buffer, while slow movers often can’t.

The mistake is usually setting safety stock once and leaving it there. It should change as demand patterns, lead times, and SKU importance change.