Safety Stock
Also known as: Buffer stock
Safety stock is extra inventory held as a buffer to protect against unexpected demand spikes or supply delays.
Safety stock cushions against uncertainty. If demand is higher than forecast, or a supplier's delivery is late, the buffer prevents a stock-out that would halt operations or lose sales. The right level depends on demand variability, lead-time reliability and how costly a stock-out would be.
Holding safety stock ties up cash and space, so it is a trade-off: more buffer means more protection but higher carrying cost. Shorter, more reliable supplier lead times let buyers safely hold less safety stock.
Frequently asked questions
- What is safety stock?
- Safety stock is extra inventory kept as a buffer against unexpected demand spikes or supply delays, preventing stock-outs that would disrupt operations.
- How much safety stock should you hold?
- It depends on how variable demand is, how reliable supplier lead times are, and how costly a stock-out would be. More reliable lead times allow lower safety stock.
Related terms
Lead Time
Lead time is the total time between placing an order and receiving the goods, a key measure of supplier responsiveness and supply reliability.
Read definitionJust-in-Time (JIT)
Just-in-time (JIT) is an inventory strategy where goods are ordered and received only as they are needed, minimising stock held on hand.
Read definitionVendor Managed Inventory (VMI)
Vendor managed inventory (VMI) is an arrangement where the supplier monitors and replenishes a buyer's stock of an item, rather than the buyer raising orders.
Read definitionExplore related across the knowledge graph
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