What does safety stock protect against in inventory management?

Safety stock is a critical element in inventory management that serves specifically to protect against stockouts. Stockouts occur when inventory is insufficient to meet customer demand, which can lead to lost sales and customer dissatisfaction. Safety stock acts as a buffer against uncertainties in inventory levels caused by various factors such as variability in demand, delays in supply chain replenishment, or unexpected increases in customer orders.

While excess inventory can indeed be an issue in inventory management, safety stock is not intended to address this directly; rather, it is meant to ensure that there is enough inventory on hand during unpredictable conditions. Similarly, inventory obsolescence refers to products losing value over time or becoming unsellable, which is a different challenge altogether that is managed through other inventory practices, such as turnover assessments. Demand fluctuations do cause challenges, but safety stock primarily addresses the risk of running out of stock due to those fluctuations, providing a safeguard specifically for instances when demand spikes unexpectedly.

Thus, safety stock is designed to create a reliable cushion against stockouts, ensuring that businesses can meet customer demands consistently even in the face of variability in supply or demand patterns.