In logistics, “safety stock” is extra inventory kept to prevent running out of products when there are unexpected changes in supply or demand. It acts as a cushion to ensure there is always enough stock available to meet customer needs and keep operations running smoothly.
Key Points About Safety Stock
- Safety stock's main job is to stop stockouts, which can cause production delays, late deliveries, and lost sales.
- To figure out how much safety stock is needed, you consider things like lead time variability (how long it takes to get new stock), demand variability (how much customer demand can change), and the desired service level (how often you want to avoid stockouts).
- Lead time is the period between ordering new stock and receiving it. Delays in this process are a major factor in determing safety stock levels.
- Customer demand can be unpredictable. Safety stock helps manage these ups and downs.
- The service level is the percentage of time you want to have enough stock to meet customer demand without running out. Higher service levels require more safety stock.
- While safety stock helps avoid stockouts and lost sales, keeping a lot of extra stock can be expensive. It's important to find the right balance.
- Managing safety stock means regularly checking and adjusting levels based on changes in demand patterns, lead times, and other factors.
By keeping the right amount of safety stock, businesses can ensure a more reliable supply chain, improve customer satisfaction, and minimize the risk of interruptions in their operations.
