What formula would you use to calculate safety stock?

The formula for calculating safety stock is crucial for maintaining an adequate inventory level to prevent stockouts during unexpected increases in demand or lead times. The correct approach involves assessing the maximum usage rate, average usage, and the lead time.

Using maximum usage allows for addressing the highest potential demand for the product, while average usage gives a baseline performance metric. By taking the difference between maximum usage and average usage, and then multiplying by lead time, you can determine the additional stock needed to meet unexpected demand fluctuations.

This method ensures that you are neither overstocking nor understocking, as it directly responds to variations in usage patterns over time. The result provides a buffer stock quantity that can sustain operations, thus maintaining service levels and customer satisfaction. The other options either incorrectly manipulate the relationships among usage rates or miss the proper calculation for safety stock entirely, leading to either inaccurate stock levels or misinterpretations of demand patterns.