Safety Stock
Definition
Extra inventory held as a buffer against uncertainty in demand or supplier lead time, reducing the risk of stockouts. Holding it costs money, so the level is a trade-off against service.
Related Terms in Purchasing & Inventory
Lead Time
The time between placing an order with a supplier and receiving the goods. Longer or more variable lead times require higher safety stock to maintain the same service level.
Inventory Carrying Cost
The total cost of holding inventory over time, including storage, insurance, obsolescence, spoilage and the capital tied up. It is a key input to order-quantity and stocking decisions.
Stockout
Running out of an item so that demand cannot be met from stock. Stockouts cost lost sales and can damage customer trust, which is why businesses hold safety stock and track reorder points.
Dead Stock
Inventory that has not sold and is unlikely to sell, tying up cash and storage space. Identifying dead stock lets a business clear it through discounts or write it off.
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