What is "safety stock" in inventory management?

Safety stock refers to the additional quantity of inventory that is maintained to prevent stockouts, which are situations where demand exceeds supply. This buffer inventory is crucial in inventory management because it provides a cushion against uncertainties in supply and demand. Factors such as variability in lead times, unexpected spikes in customer demand, or delays from suppliers can affect inventory levels. By keeping safety stock, a business can ensure that it has enough product available to meet customer needs even when faced with these unpredictable events.

In essence, safety stock is a strategic resource that allows for smoother operations, helping to maintain service levels and customer satisfaction. Thus, when an unexpected demand surge occurs or if a shipment is delayed, the safety stock is what enables a company to fulfill orders without interruption.