What is the purpose of safety stock?

Safety stock serves a critical role in supply chain management by acting as a buffer against uncertainties that can arise in both demand and supply. In real-world operations, demand can fluctuate due to seasonal trends, unexpected market changes, or shifts in consumer preferences. Similarly, supply can be disrupted by various factors including delays from suppliers, production issues, or logistical challenges.

By maintaining safety stock, companies can ensure they have sufficient inventory available to meet customer demands even when real-time conditions do not align with planned levels. This reduces the risk of stockouts, ensuring reliable product availability and enhancing customer satisfaction. Furthermore, it helps mitigate the impact of unforeseen variations in both demand and supply, contributing to overall operational resilience and efficiency.

On the other hand, taking approaches such as trying to eliminate all inventory, reducing production costs, or focusing on employee morale would not directly address the need to manage uncertainties in demand and supply. Thus, while these aspects are important in a broader context, they do not serve the fundamental purpose of safety stock in inventory management.