Safety Stock

  What is Safety Stock? Safety stock or buffer stock is the additional quantity of an item above the desired quantity that is held in the on-hand inventory. Such extra inventory is held with the sole purpose of avoiding the risk of running out of stock. Safety stock serves as an insurance or a cushion for manufacturers and retailers against possible out of stock situations for an item. Such stock outs are caused usually by: ·          Changes in the demand for the item ·          Inaccuracies in the forecasts of the item ·          Unforeseen disruption to the supply line of the item Maintaining safety stock for an item comes with its own challenges. The first is the identification of the appropriate method of calculation in arriving at the right quantities that need to be maintained for each item. The second is the increase in the working capital to st...