Taitt Supply Chain Management (SCM) Exam 1 Practice

What is a common safety stock calculation approach?

SS = average demand per period. SS = z × σDL SS = z / σDL SS = L × D

Correct Answer:

SS = z × σDL

Explanation:

Safety stock is a buffer against uncertainty in demand during the replenishment lead time. The common way to quantify it is to multiply the z-score for the desired service level by the standard deviation of demand during lead time, giving SS = z × σDL. The z value determines how confident you want to be about avoiding a stockout, while σDL represents how much demand can vary over the lead time. If lead time is fixed, σDL reflects the variability in demand per period across that lead time (often σDL = σ × sqrt(L)). Using just the average demand ignores variability and can lead to stockouts, while lead-time demand (L × D) is the expected consumption during lead time, not the safety buffer.

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