What is safety stock and why is it needed?

• A. A buffer stock used only for promotions.
• B. The average stock level carried across all locations.
• C. The minimum level to prevent stockouts in normal conditions.
• D. Extra stock kept to protect against demand and/or lead-time variability; reduces risk of stockouts.

Answer: (D)

Safety stock is extra inventory kept above expected demand to act as a cushion against uncertainty in both demand and supplier lead times. It helps prevent stockouts when actual demand turns out higher than forecast or when deliveries arrive later than planned. In practice, replenishment is often triggered by a reorder point that covers the expected demand during lead time plus this safety stock, so you still have enough on hand if variability hits. The amount of safety stock you hold depends on how much variability you face and how much service level you want to maintain: more unpredictable demand or longer/less reliable lead times mean more safety stock, while a more predictable system requires less. It’s a buffer, not merely the average across locations or the minimum stock under normal conditions, and it’s not specifically for promotions.