What is the purpose of safety stock in inventory management?

The purpose of safety stock in inventory management is fundamentally about mitigating risks related to uncertainties in demand or replenishment times. Safety stock serves as a buffer inventory that ensures a company can continue to meet customer demand even when faced with unexpected fluctuations, such as an increase in demand that exceeds forecasts or delays in restocking due to supply chain disruptions.

This proactive approach allows businesses to maintain service levels, reduce the risk of stockouts, and ultimately ensure customer satisfaction without needing to constantly adjust production schedules or ordering quantities. It is a critical component for companies that operate in environments where demand can be unpredictable or where supply chains are prone to interruptions. Safety stock plays a pivotal role in balancing inventory costs with customer service goals, making it essential in effective inventory management strategies.