Posted in Operations and Supply Chain Terms, Total Reads: 1578
Definition: Safety Stock
It is the extra quantity of materials held in inventory to be used to satisfy the excess demands when replenishment is underway. It prevents stock out if the quantity available is less then demanded during this period.
Safety stock is important as forecasting of demand during the lead time of replenishment is not always accurate and may lead to stockout. Thus safety stock takes care of the variability in the demand and improves availability.
Manufacturing units maintain safety stock of their critical parts to prevent any stockouts which will affect their production.
In a retail store, daily demand of t-shirts is 30 units and it takes 5 days to replenish the stock. Thus it will reorder new stock when minimum level of inventory is reached and keep at least 30 units x 5 days of stock as safety stock to prevent any stockouts.