safety stock

safety stock

Safety stock is an additional quantity of an item held in inventory in order to reduce the risk that the item will be out of stock. Safety stock acts as a buffer in case the sales of an item are greater than planned and/or the supplier is unable to deliver additional units at the expected time.

There are additional holding costs associated with safety stock. However, the holding costs could be less than the cost of losing a customer if the customer’s order cannot be filled.

Over time, inventory goes up and down. As customer order shipments are made inventory transactions subtract the ship quantity from the quantity on hand. When production is made or goods received into the warehouse the quantity on hand goes up. This up/down cycle can be thought of as a ‘saw tooth’. Except it’s never as neat and tidy as this.

We need safety stock and safety lead time to protect our customers from variation in supply and demand.