Safety stock
What is safety stock?
Safety stock, also known as buffer stock or reserve inventory, refers to the extra inventory held by a company above its average demand level. The purpose of safety stock is to provide a buffer against unexpected fluctuations in demand, supply disruptions, or lead time variability. Safety stock serves as a contingency measure to ensure that sufficient inventory is available to meet customer demand during unforeseen circumstances
By strategically managing safety stock levels, companies can minimize the risk of stockouts, maintain high service levels, and mitigate the impact of disruptions on their supply chain performance.
How to calculate safety stock
Calculating safety stock involves considering factors such as demand variability, lead time variability, and desired service level. One common method is to use statistical techniques such as the reorder point formula or the use of safety stock formulas to determine the optimal level of safety stock required. Additionally, historical sales data and demand forecasting models can be used to estimate safety stock levels accurately.