What is safety stock? (and how much extra to hold)

What safety stock means

Safety stock is the extra inventory you keep on purpose, beyond what you expect to sell, so a surprise does not leave you with an empty shelf. The surprise could be a supplier running late, a courier delay on incoming goods, or an Instagram post that sells more than you planned.

It is a cushion. You hope never to use it, but you are glad it is there when you need it.

Why not just hold plenty

Because stock costs money. Every extra unit sits on your shelf as cash you cannot use for anything else, and some products can get damaged, go out of fashion or pass their best date. So safety stock is a trade. More cushion means fewer stockouts and more cash tied up. Less cushion frees cash and raises the chance of running out.

There is no single right amount, and I will not name an ideal. It is your choice, based on how much a stockout would hurt you.

An illustrative example

Say you reorder a scented candle in runs of 30 units. You decide to hold a cushion of 20 percent of a run.

20 percent of 30 is 6 units.

So you keep 6 candles aside as safety stock. If your supplier is a week late, or sales spike, those 6 cover you. If everything goes smoothly, you will still have them, and they roll into the next cycle.

Notice how the percent is only a way of thinking. You might choose 10 percent for a steady, easy-to-restock item, and 40 percent for an item with a long, unreliable supply. The percentage is an example, not a recommendation.

Questions to ask yourself

• How late has my supplier been in the past? A supplier who is sometimes a week late deserves a bigger cushion than one who is always on time.
• How quickly can I restock? If you make the item yourself, a small cushion is fine.
• What happens if I run out? Losing a bestseller for a week during a festive window costs more than losing a slow item.
• Can the product wait? Items with a short life should have a thin cushion.
• How much cash can I lock up? Do not starve other needs. See working capital: a simple formula for sellers.

Safety stock and reorder point

Safety stock fits into the reorder point. The reorder point is the sales you expect during your wait, plus the cushion. Our worked example in what a reorder point is shows how the two add up, and setting a reorder point for your products covers the routine.

Keep it honest

Safety stock only works if you do not quietly sell it. If your count says 6 but you have sold them as regular stock, then there is no cushion left. Mark it clearly, for example in a separate box or a note on your sheet. And if your count and your records disagree, what to do when stock count does not match can help.

Review it

Check your cushion every few months. If you never touch it, it may be too big. If you keep hitting zero, it may be too small. Adjust gently, one product at a time.

Where to start

Choose your top item. Ask how late the last two deliveries were, decide a cushion you are comfortable with, and write the number next to the product. Then watch how it behaves over a month.