Definition

Safety stock is an extra quantity of a product which is stored in the warehouse to prevent an out-of-stock situation. It serves as insurance against fluctuations in demand.

Bear in mind that you want to have enough safety stock to meet demand. But not so much that increased carrying costs puts a strain on cash flow.

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How can safety stock help my business?

Safety stock acts as a buffer amount that accounts for uncertainties such as:

• Excess demand
• Supplier delays
• Inaccurate demand or inventory forecasts
• Failure to place timely reorders
• Financial constraints

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