Safety stock, reorder point, economic order quantity: the calculations.

How do you calculate the safety stock?

Safety stock is the buffer for everything that doesn't go to plan: demand jumps, the supplier is late. The standard formula:

The factor z comes from the normal distribution and grows with the service-level target, and does so disproportionately. That's exactly why the last percentage points of service level are the most expensive:

Work it through below with your numbers. Model: cycle service level with normally distributed demand. σ is provided by your ERP as the standard deviation of daily consumption.

When must you order? The reorder point.

The reorder point is the stock level at which you must order at the latest so the goods arrive before you run empty. It covers the expected consumption during replenishment plus the buffer:

It's computed against available stock: physical plus open orders minus reservations. Nobody checks this by hand across 5,000 articles. That's exactly what runs in our system automatically every night, per article.

Which quantity is optimal? The EOQ formula.

The economic order quantity balances two cost blocks: the larger the order, the less often you order (fewer ordering costs), but the more capital sits in the warehouse (more holding costs).

In practice, packaging units, minimum order quantities and tiered prices override the pure formula. It nevertheless stays the right starting point to question grown gut-feeling order quantities.

Where do the formulas hit their limits?

All three formulas assume reasonably stable, normally distributed demand. Three cases break that:

This is exactly where Excel ends: maintaining formulas per article, keeping classes current, detecting special cases. In our system, inventory optimisation computes this nightly per article. The calculations above stay the basis on which you can trace every result.