Safety stock can be a confusing term for Amazon sellers. Some say it is inventory that is used to account for unexpected events. However, this isn’t technically true, because the calculation of safety stock is based on expected events. You are expecting variability in sales, so you put safety stock in place to prevent a stockout.

Safety stock is calculated using some fancy statistics that use a service level you set and the variability in your historical sales. To put it simply, safety stock is your insurance against having a stock out that is a result of a change in sales.

To put it simply, safety stock is your insurance against having a stock out that is a result of a change in sales.

Some folks will just send Amazon a ton of extra inventory to account for sales spikes. Calculating safety stock in this fashion is a rookie mistake! Tieing up cash with a move like this can significantly hamper your growth. Fast growth on Amazon requires money to buy new inventory. The greater your excess inventory, the less cash you’ll have to grow.

We suggest using Forecastly or another inventory management tool to determine the correct safety stock you should have at Amazon. The correct calculation will maximize your cash available to grow while minimizing stockouts on your products.

You don’t need to worry about how safety stock is calculated, but you should understand what it is and why it is used.

  • BPN03

    Do you use the standard statistical safety stock method? I posted it below so that you know what I consider “standard”. I typically use a more advanced calculation that doesn’t make the assumption of normality found in the equation below. If you use the equation below, but would like to discuss the method I”m referencing, please reach out to me and we can collaborate.

    {Z * SQRT (Avg. Lead Time * Standard Deviation of Demand ^2 + Avg. Demand ^2 * Standard Deviation of Lead Time ^2)}

    Regards,
    Bryan – ASCT

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