Understanding Fixed Quantity Method and Fixed Period Method: Calculating Safety Stock


The Fixed Quantity Method and the Fixed Period Method. Understanding these methods is crucial for effective inventory management and ensuring sufficient stock levels to meet customer demand. Let’s explore each method in detail.

Fixed Quantity Method: 

The Fixed Quantity Method, also known as the Reorder Point Method, determines safety stock based on the quantity of items needed to cover demand during the replenishment lead time. Here’s how it works:

  • Calculate the average demand per day: Determine the average daily demand based on historical data or demand forecasts.
  • Calculate the average lead time: Calculate the average time it takes from placing an order to receiving the replenishment.
  • Multiply average demand per day by average lead time: Multiply the average daily demand by the average lead time to determine the safety stock needed to cover demand during this period.
  • Add a desired level of service: Adjust the safety stock quantity by adding a buffer to account for unexpected demand variations or supply disruptions.
  • Total Safety Stock = (Average Demand per Day × Average Lead Time) + Buffer for Service Level


Let’s say a retail store sells 50 units of a product per day on average, and the average lead time for replenishment is 7 days. If the store wants to maintain a service level of demand, they might add a 2-day buffer to the safety stock calculation.

Safety Stock = (50 units/day × 7 days) + 2 days(i.e. 50 × 2=100) = 450 units

Fixed Period Method: 

The Fixed Period Method, also known as the Interval Review Method, calculates safety stock based on the maximum demand that can occur during a specified review period. Here’s how it works:

  • Determine the review period: Choose a fixed time interval to review and reorder inventory. This could be weekly, monthly, or any other appropriate period.
  • Calculate maximum demand during the review period: Analyze historical demand data or forecasts to identify the highest quantity of items sold within the chosen review period.
  • Determine the desired level of service: Consider the desired service level and add a buffer to account for uncertainties and unexpected variations in demand or supply.
  • Total Safety Stock = Maximum Demand during Review Period + Buffer for Service Level


Suppose a distributor reviews inventory every two weeks, and historical data shows that the maximum demand during this period is 200 units. To maintain a service level of demand, the distributor might add a 20% buffer.

Safety Stock = 200 units + (20% × 200 units) = 240 units


Understanding the Fixed Quantity Method and Fixed Period Method is essential for effectively calculating safety stock and maintaining optimal inventory levels. By accurately estimating safety stock requirements, businesses can ensure they have sufficient stock to meet customer demand, minimize stockouts, and improve overall operational efficiency.