Safety Stock Definition
The term “safety stock” refers to a level of inventory that is maintained to protect against stock outs. Safety stock is typically calculated based on historical data and demand forecasts. The goal of safety stock is to ensure that there is enough inventory on hand to meet customer demand, even when there are unforeseen events or fluctuations in demand.
Safety stock can be a costly investment for businesses, as it ties up capital in inventory that may not be needed. However, the cost of a stock out can be even greater, so businesses must strike a balance between the two. The ideal level of safety stock will vary from business to business and product to product.
