Calculating safety stock: a simpler method

By Oleg Mikhailenko
Published in Solutions
June 23, 2022
2 min read
Calculating safety stock: a simpler method

It’s a no-brainer that in order to sell online, you first need to have access to something you can sell. It almost seems silly to mention something so obvious. However, more and more merchants find themselves affected by stock outs ,which are not only annoying and stressful to deal with on their own merit, but cause uncertainty and displeasure among your customer base. If your customers aren’t guaranteed to be able to get the products they need from you, it’s only a matter of time before they find them from someone else.

What you need is safety stock inventory. By maintaining a healthy amount of it, you’ll be that much more equipped to deal with hurdles and roadblocks such as a delayed shipment of incoming merchandise, or an unexpected business boom that would otherwise leave you scrambling. Read on to discover what it is, how to use it, and what you can do to make sure your business is as cushioned from unexpected shocks as possible.

What is a stock out?

If you happen to sell out of a specific SKU, you have what’s known as a stock out. Stock out costs can be more than you expect. Not only do they represent a missed opportunity for sales, but if it’s a product that your buyers are clamoring over, having a long period of time where the coveted item isn’t available can damage trust and brand loyalty. Hype only goes so far towards keeping your customers loyal.

What is safety stock?

In a nutshell, you can understand the safety stock definition as the minimum level of inventory required to last you through the arrival of your next shipment of merchandise. Different merchants and 3rd party logistics providers will have differing ideas and opinions on what constitutes an acceptable minimum level of supply,  and there’s a number of safety stock calculator sites out there that can help you make the best decisions possible for your business.

What’s the best way to know how to calculate safety stock?

Safety stock calculation isn’t as complicated as many make it out to be. If you’re wondering if there’s some sort of specialized safety stock formula you can follow, we’re going to break it down for you here.

First, take a look at the average time it takes for a fresh order of new merchandise to be manufactured, arrive, and be keyed into inventory. Multiply that number by one and a half or even two times to be safe and account for any delays, which are unfortunately pretty common recently thanks to disruptions in the supply line. Say the number you come up with is two months.

Next, look at your sales. What’s the highest number of sales you’ve had in any two-month period? Take that number, and increase it by a little to account for any unexpected business booms. Now you have the minimum level of stock you ought to have at any given time. There’s obviously a wide variety of safety stock equation options, many more complex and exact than this, but this will give you a good baseline to work from.

In conclusion

With this simple method, you have a quick and dirty way of calculating safety stock that won’t give you a headache. But if you don’t feel like doing all the heavy lifting yourself, not to worry. P2Pseller’s got your back. Our information and inventory tracking software enables you to calculate the amount of safety stock you should have on hand at any given time, and automatically reorder product once you hit a certain threshold. Register a free account with us today to browse the full extent of our offerings, without any commitment required on your end. We’d love nothing more than to have you on board.


Tags

#safetystock#inventory#warehousing#warehousemanagement
Previous Article
How to make the best of delivery exceptions

Oleg Mikhailenko

Co-Founder, CEO P2Pseller

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