Inventory glossary

Z-score in inventory

Z-score in inventory is a number from the standard normal distribution that tells you how many standard deviations above average demand you want your safety stock to cover, based on the service level you choose.

Picking a service level like 95% feels arbitrary until you turn it into a Z-score. The Z-score is what actually goes into the safety stock formula, so it connects your target (how often you're willing to stock out) to a real number you can calculate with.

You do not need to calculate Z-scores yourself. A small set of them are standard: 90% service level is 1.28, 95% is 1.65, 97.5% is 1.96, and 99% is 2.33. Pick a service level per product based on how costly a stockout is, then use the matching Z-score in your safety stock calculation.

Formula

Safety stock = Z x standard deviation of demand per period x sqrt(lead time in the same periods)

Example

A candle store wants a 95% service level for its bestselling jar candle, so Z = 1.65. The standard deviation of weekly demand is 8 units and lead time is 3 weeks. Safety stock = 1.65 x 8 x sqrt(3) = 1.65 x 8 x 1.73 = about 23 units.

Common mistakes

Treating a higher Z-score as always better, when it just means more safety stock and more carrying cost.
Using the same Z-score for every product instead of matching it to how much a stockout actually costs.
Confusing Z-score with service level percentage itself, they are related but not the same number.

Z-score in inventory and SteadyShelf

SteadyShelf uses demand variability and lead time per SKU to set reorder points, so you do not need to look up or apply Z-scores by hand.

Work it out for your own products with our free tool: Safety stock calculator.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Full inventory glossary

FAQ

Do I need to calculate Z-score myself for my Shopify store?

No. You only need to pick a service level, like 95%, and use the standard Z-score that matches it. These values are fixed and widely published, you just look them up.

Why would I use a higher Z-score for one product and not another?

Use a higher Z-score for products where running out is expensive, like a bestseller or a wholesale commitment. Use a lower one for low-value or slow-moving items where a stockout is not a big deal.

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