Safety stock
Also called buffer stock
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is safety stock?
Safety stock is extra inventory a distributor keeps to cover unexpected demand or late supplier deliveries, so it doesn’t run out before the next shipment. More safety stock means fewer stockouts but more money tied up in inventory.
How it works
Planners size safety stock from how much demand and supplier lead times vary and from a target service level: the probability of not running out of the item before the next delivery arrives. A critical item from an unreliable supplier gets a higher target than one customers can easily substitute.
Safety stock example
For a filter that sells about ten a week from a supplier that is sometimes late, a buyer keeps eight extra on hand.
Related terms
- Reorder pointA reorder point is the stock level at which a distributor places a new purchase order for an item, set so the new stock arrives before the old runs out.
- Min/maxMin/max is a simple replenishment method in which each item has a minimum and a maximum stock level that trigger and size each new order.
- Lead timeLead time is the time between placing an order and receiving the goods.
- StockoutA stockout is a situation in which a distributor has none of an item available to sell when a customer wants it.
- Fill rateFill rate is the percentage of ordered goods a distributor ships straight from its shelves on the first delivery, before any backorders arrive.
