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Choosing an ideal safety stock level

Learn how to set the right safety stock level based on demand, supply variability, and more.

Dayvid Lorbiecke avatar
Written by Dayvid Lorbiecke
Updated over a week ago

Determining the appropriate level for safety stock involves considering future demand, manufacturing and delivery lead times, and financial constraints. This process ensures optimal stock levels to prevent overstocking while avoiding shortages.


Why it matters

Setting the right safety stock level ensures you can meet customer demand without overstocking. It protects you from supply delays, demand spikes, and unexpected events — while avoiding unnecessary storage costs and tied-up cash.


Factors to consider

When determining your ideal safety stock level, review the following:

  • Estimated future demand — Forecast expected sales based on trends and historical data.

  • Delivery times to customers — Keep inventory levels as low as possible while still meeting promised delivery dates.

  • Material needs for production — Ensure enough materials are on hand to avoid production delays, even if you don’t hold finished goods in stock.

  • Lead times and variability — Factor in both average and possible delays in purchasing and manufacturing.

  • Cash flow impact — Remember that excess inventory increases storage costs, risk of obsolescence, and ties up working capital.


Common causes of safety stock needs

Safety stock protects against:

  • Supplier failures

  • Missed manufacturing targets

  • Seasonal demand changes

  • Large, unexpected orders


Tip for Make-to-Order businesses

In a Make-to-Order (MTO) setup, safety stock for finished products is usually set to 0, as you don’t store products before orders.


However, we recommend setting safety stock for materials to ensure uninterrupted production.


Bottom line: The right safety stock level strikes a balance — enough to cover supply and demand fluctuations, but not so much that it strains your storage space or finances.


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