Safety stock
What it protects against
No forecast is exact and no supplier is perfectly reliable. Safety stock is the buffer that absorbs the gap between the plan and reality: a sudden order, a delivery that slips a week, a supplier who is short. It is the difference between a wobble and a stockout.
Getting the level right
The right buffer is not the same for every line. It rises with how variable the demand and the lead time are, and with how much a stockout would cost you in lost sales or lost goodwill. A steady, easily-replaced line needs little; a volatile, hard-to-source line needs more.
The cash trade-off
Safety stock is insurance, and insurance has a premium: cash and shelf space. Held sensibly it protects service on the lines that matter. Held indiscriminately it becomes dead stock. The discipline is matching the buffer to the risk, line by line.
Frequently asked questions
What is safety stock?
Safety stock is the extra inventory held above expected demand to cover uncertainty in demand and in supply lead times, so a spike or a late delivery does not immediately cause a stockout.
How much safety stock should I hold?
Enough to cover the variability you actually see and the lead times you actually face, weighted by how costly a stockout would be for that line. Fast-moving, hard-to-replace lines justify more; slow, easily-replaced ones justify less.
What is the difference between safety stock and reorder point?
Safety stock is the buffer itself. The reorder point is the stock level that triggers a new order, and it typically equals expected demand over the lead time plus the safety stock.
Does holding safety stock tie up cash?
Yes, which is why it is a balance. Safety stock is insurance you pay for in working capital and shelf space. The goal is enough to protect service on the lines that matter, without over-insuring lines that do not.
See it running on a real wholesale P&L
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