What does "safety stock" refer to?

Safety stock refers to a surplus of inventory kept on hand to prevent stockouts, which can occur due to unexpected increases in demand or delays in supply replenishment. Having this additional stock acts as a buffer, ensuring that a business can continue to meet customer demand even in unforeseen circumstances. This practice is essential for maintaining service levels and customer satisfaction, particularly in environments where demand can be volatile or supply chains are complex.

The concept plays a critical role in inventory management by providing a cushion against uncertainty, helping organizations look beyond average demand and considering variability in order fulfillment. By holding safety stock, businesses minimize the risk of running out of products, which can lead to lost sales and diminished customer trust.