Safety stock is a tool used in inventory management to calculate the amount of inventory needed as a buffer against potential stock-outs. It helps prevent customer dissatisfaction and lost sales due to lack of availability. The formula for calculating safety stock takes into account factors such as lead time, average demand, supplier reliability, order quantity size, and the allowable risk of stock-out. Businesses can use this information to ensure they have enough stock on hand to meet customer orders while avoiding excess inventory costs.