Safety stock is primarily used to mitigate which risks?

• A. Demand variability and lead time variability
• B. Price fluctuations
• C. Currency exchange risk
• D. Demand variability and lead time variability

Answer: (D)

Safety stock acts as a buffer against uncertainty in demand and replenishment lead times. When actual demand is higher than forecast, or when the time between placing an order and receiving it varies, inventory can run out. Having extra stock during those periods helps maintain service levels and prevent stockouts. Financial risks like price fluctuations or currency exchange affect cost rather than inventory availability, so they aren’t mitigated by safety stock. The protection safety stock provides targets demand variability and lead time variability.