What is safety stock and how is it calculated?

Question

Accepted Answer

Safety stock is the extra inventory held to protect against uncertainties in demand or supply.

Safety stock is a buffer stock maintained to prevent stockouts and meet unexpected demand.
It acts as a cushion to absorb fluctuations in demand or supply.
Safety stock is calculated based on factors like lead time, demand variability, and desired service level.
For example, if a company typically sells 100 units of a product per day and the lead time is 5 days, they may keep a safety stock of 500 units to cover any unexpected increase in demand or delays in supply.

Accepted Answer

Safety stock is a minimum of extra stock maintained to deal with uncertainties in supply and demand. this strategy is used mainly for critical materials whose suppliers are limited/whose manufacturing lead time is higher/ not available in the open market.

Asked in KPMG Global Services

What is safety stock and how is it calculated?

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