Which statement describes safety stock?

• A. It buffers against uncertainty
• B. It is the same as cycle stock
• C. It is used to replace damaged goods
• D. It is stored only at the supplier

Answer: (A)

Safety stock is inventory kept in excess of expected demand to guard against uncertainty in demand and supply. It serves as a cushion to prevent stockouts when actual demand turns out higher than forecast or when replenishment lead times are longer than planned. By having this extra inventory, a company can continue to satisfy customers even if there’s a sudden spike in demand or a delay in deliveries.

This is different from cycle stock, which is the normal amount of inventory needed to meet predictable, regular demand within a replenishment cycle. Safety stock is not specifically for replacing damaged goods, and its location isn’t fixed to the supplier—it can be held at the production plant, distribution center, or supplier depending on where the demand or supply uncertainty most impacts service levels.