Safety Stock

Extra inventory that is kept to prevent stockouts, typically caused by inaccuracies in demand forecasts and lead time.

What is Safety Stock?

Safety stock is a buffer inventory maintained by companies to protect against unexpected fluctuations in demand or supply. It acts as a cushion to ensure that there are enough products on hand to meet customer needs even in the face of uncertainties such as sudden spikes in demand, supplier delays, or inaccurate sales forecasts. By holding safety stock, businesses can reduce the risk of stockouts and maintain high levels of customer satisfaction. It provides a level of insurance against disruptions in the supply chain, enabling companies to continue operations smoothly even under challenging circumstances. Safety stock is typically calculated based on factors such as lead time variability, demand volatility, and desired service levels. While carrying excess inventory can increase holding costs, the benefits of having safety stock in place often outweigh the associated expenses. It offers companies a degree of flexibility and resilience, allowing them to navigate fluctuations in demand and supply with greater ease and confidence. In essence, safety stock serves as a strategic tool for mitigating uncertainties and ensuring continuity in operations.