Question 1

How is safety stock calculated?

Accepted Answer

Safety stock is the service-level factor (Z) multiplied by the combined variability of demand and lead time over the replenishment lead time: SS = Z × √(LT × σ_demand² + demand² × σ_leadtime²). A 90% service level uses Z = 1.28, 95% uses 1.65, 97.5% uses 1.96 and 99% uses 2.33. The bigger your demand swings or the more variable your supplier’s lead time, the more safety stock you need.

Question 2

Why do South African importers need more safety stock?

Accepted Answer

Because safety stock grows with the uncertainty accumulated over the lead time — and it rises faster than the lead time itself once lead-time variability is added. A 1-week local supplier might need 60–80 units of buffer where a 7-week import with a variable shipping window needs several times more, often 300–500 units, for the same service level. Shortening or stabilising lead time is the single biggest lever.

Question 3

What is the reorder point?

Accepted Answer

The reorder point is the stock level that should trigger a new order: expected demand during the lead time plus your safety stock (ROP = demand × lead time + safety stock). Ordering when stock hits this level means the replenishment arrives just as the buffer would otherwise run down.

Question 4

What is the economic order quantity (EOQ)?

Accepted Answer

EOQ is the order size that minimises total ordering plus holding cost: EOQ = √(2 × annual demand × ordering cost ÷ annual holding cost per unit). Ordering in bigger batches cuts ordering cost but raises the cycle stock you carry; EOQ is the balance point.

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