I don’t understand how the following formula is derived:

Min. level = Reorder level - (average lead time X average usage).

But, as I would think, a minimum level of stock is a level at which a reorder must be placed so that the reorder can arrive just in time to replenish a stock level to last the mimimum lead or delivery time before another such replenishment starts.

a) The shortest period a reorder can wait is the minimum lead or delivery time during which a stock level can be replenished just in time to eliminate a potential stock-out; and

b) The minimum time during which the minimum stock level can be exhausted is when the usage per unit period reaches its lowest (correction: highest) point, i.e. minimum (correction: maximum) usage.

So, the minimum level of stock = minimum lead time X minimum usage.

Sounds logic. But this formula gives different results than the textbook one.*

Now, “safety stock“. By “safety”, we should mean that this stock level is “safe” enough to sustain the minimum delivery or lead time during which the maximum usage is reached, i.e. minimum delivery or lead time X maximum usage. So, this is my idea of safety for a stock level: I wouldn’t have to worry about a stock-out. Or rather, this level is the one that I’ve come to believe is safe after considering an accurate record of past stock performance and predictable future usage, and reorders supplied on time… In one word, everything else should be okay for this level to work.

*This all depends on how “they” define a “minimum” level.