How much safety stock is approximately needed for a 95% service level in the given example?

To determine how much safety stock is necessary for a 95% service level, it is essential to understand the concept of safety stock and the service level. Safety stock serves as a buffer against uncertainties in demand and lead time, ensuring that a company can meet customer demand without running out of inventory.

In reaching a 95% service level, the aim is to have enough safety stock to fulfill customer demand 95% of the time. This is typically calculated using statistical methods that account for the variability in demand and lead time. The Z-score for a 95% service level is approximately 1.65, which signifies how many standard deviations away from the mean a certain demand level is expected to be.

To arrive at the required safety stock of 41 units, one must assess the mean demand and lead time variability from the scenario provided. By applying the formula for safety stock—where safety stock equals the Z-score multiplied by the standard deviation of demand during lead time—it can be determined that this amount effectively buffers against potential shortages, thereby achieving the desired service level.

In summary, 41 units of safety stock ensures that the company can manage demand fluctuations while still meeting customer needs 95% of the time, reflecting best practices in inventory management and supply