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There is no formula. It is up to the company to decide whether or not they want to carry safety (or buffer) stock, and if so then how much.
If relevant in an exam question then you will given more information.Ok got it.
Well I have seen the formula which is like:
(Maximum Usage × Maximum Lead Time) – (Average Usage × Average Lead Time)
and on some websites
(Maximum Usage × Maximum Lead Time) – (Minimum Usage × Minimum Lead Time)
This is the reason I asked the question, because I am confused between two of these.
Additionally, I have one more misunderstanding related to the topic. Is the ‘Safety Stock’ , ‘Buffer Stock’ and the ‘Minimum Level of Inventory’ the same?
With regard to formulae, then as I said it depends what information is given in the question (i.e. whether you are given maximum usage etc..).
However all of this is explained in my free lectures (with examples) – the lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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