What is the purpose of safety stock in inventory management?

Safety stock serves as a crucial element in inventory management designed to mitigate risks associated with fluctuations in both customer demand and supply chain disruptions. The primary purpose of safety stock is to act as a buffer that ensures that sufficient inventory is available to meet unexpected increases in demand or delays in supply.

By maintaining safety stock, a company can better handle variability without running the risk of stockouts, which can lead to lost sales and dissatisfied customers. This stock helps to smooth out the discrepancies that can arise from the inaccuracies in demand forecasting, lead time variability, or production delays. It allows businesses to maintain their service levels even during times of uncertainty, providing a safeguard that helps in sustaining operations and customer satisfaction.

In summary, safety stock is vital in creating a resilient inventory strategy that accommodates the unpredictability inherent in market conditions, ensuring that customer needs can be met without interruption.