Purpose of safety stock.

• A. To protect against uncertainty in demand and lead times, reducing the risk of stockouts
• B. To maximize inventory at all times
• C. To cover seasonal promotions only
• D. To eliminate the need for safety stock

Answer: (A)

Safety stock acts as a cushion against variability in demand and in supplier lead times, so you don’t run out of stock before new replenishments arrive. Forecasts can miss actual demand, and orders can be delayed; having extra inventory on hand keeps service levels high and protects operations from disruptions. The more unpredictable demand or longer the lead times, the more safety stock you need to maintain the desired service.

This isn’t about maximizing inventory or simply covering promotions. It’s about balancing the risk of stockouts with the cost of holding extra stock, to keep customers served while avoiding unnecessary excess.