The Safety Stock Syndrome

Abstract

This paper investigates the role of safety stocks in fixed order quantity-reorder point inventory systems. A common confusion over the notion of a shortage probability is shown to lead to methods which encourage excessive safety stocks. An alternative approach, proposed by R. G. Brown, is validated under quite general demand conditions. When combined with a numerical example, it is shown that negative safety stocks may be the rational response to the problem of uncertain demands, even when high levels of service are required.