Posted in Operations and Supply Chain Terms, Total Reads: 12088
Definition: Buffer Stock
‘Buffer stock’ or ‘strategic stock’ or ‘safety stock’ or ‘buffer inventory’ is defined as a supply of inputs held as a reserve in case there are future demand and supply fluctuations. It is the excess inventory or safety stock, which retains some kind of buffer to protect in case of uncertain future.
Buffer stock may be found at all stages of the supply chain, and is intended to reduce the occurrence or severity of stock-out situations and thus provide better line continuity and/ or customer service. Buffer stock is used in production or other inventory situations to ensure that exceptional or unpredictable shortages or demands can be met with some degree of certainty.Safety stock is generally held when there is uncertainty in the demand level or lead time for the product.
The amount of buffer stock a business chooses to maintain regularly can dramatically affect their operations. Too much buffer stock can result in high inventory carrying costs. Too less stock can cause repeated occurrences of stock-outs. Hence, businesses need to maintain a fine balance and decide on the amount of buffer inventory to be held.
Advantages of Buffer Stock :
1. Prevention from demand-supply fluctuations
2. Can result in stable revenue generation
3. By having buffer stock, opportunity losses do not occur
Disadvantages of Buffer Stock:
1. In case of shorter shelf life, the products can get damaged and be rendered useless.
2. Additional overhead costs in purchasing and storing this stock