Safety stock is an additional quantity of an item held in the inventory to reduce the risk that the item will be out of stock. It acts as a buffer stock in case sales are greater than planned and/or the supplier is unable to deliver the additional units at the expected time.
According to Wikipedia, safety stock is:
Generally, it is a small, surplus stock that you maintain on hand, to protect from variability in market demand and your supplier lead time. You carry it because you do not want to run out of stock which might both severely impact your bottom line and also do untold damage to your customers’ view on you.
The theoretical formula used to calculate safety stock:
Safety Stock = (Max Daily Sales x Max Lead Time in Days) – (Average Daily Sales x Average Lead Time in Days)
You can calculate this using our software, click here.
The other point I recommend is running this report which will give you a feel of what the actual problem you are facing here.
Go to reports > stock > Sold Out or Selling Out Stock Lines
In theory, this report only shows items that are selling well in the nominated period, but that you are running out of, so you need to check on them ASAP. This can help you make sure you have adequate stock.
However, it does much more, what it also alerts you is whether items are not properly entered into your system as the stock on hand figure is negative as you can see by the example below.
I would recommend running this report regularly as it will alert you to both out of stock situations and errors in invoicing.
