Safety Stock
Safety stock is extra inventory held as a buffer against demand spikes and supply delays, so a stockout does not happen the moment forecasts are wrong. It is sized from demand variability, lead time, and the service level a business wants to hit. More safety stock raises service but ties up cash.
Why safety stock exists
Demand and lead time both vary. Safety stock absorbs that uncertainty so the business keeps filling orders when a shipment is late or a week sells faster than expected. It is the cushion that sits behind the reorder point.
Sizing safety stock
Common formulas combine demand variability, lead-time variability, and a service-level factor. Hold too little and fill rate drops; hold too much and cash sits on the shelf. Accurate lead-time data, including order-processing time, makes the calculation tighter.
Related Terms
Related Resources
Frequently Asked Questions
Safety stock is buffer inventory held to protect against demand and supply variability, so a late shipment or a demand spike does not immediately cause a stockout.
Safety stock is sized from demand variability, lead-time variability, and a target service level. Higher service levels and more variability require more safety stock.
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