What is the role of safety stock in supply chain management?

Safety stock plays a critical role in supply chain management by serving as a buffer against uncertainties in demand and lead times. Specifically, it is intended to prevent stock-outs during unexpected demand spikes. When there is an unpredicted increase in customer demand or delays in receiving replenishment stock, safety stock ensures that there is enough inventory on hand to meet customer needs without interruptions.

By maintaining a certain level of safety stock, businesses can better accommodate fluctuations in demand or supply chain disruptions, enhancing service levels and customer satisfaction. This capability is essential for meeting customer expectations, especially in volatile markets where demand can change rapidly.

The other options do not accurately capture the primary purpose of safety stock. While minimizing backorder percentages and maximizing sales revenue can be indirect benefits of having adequate inventory levels, they do not specifically highlight the protective function of safety stock against demand fluctuations. Increasing the maximum order quantity is unrelated to the concept of safety stock, which is more focused on managing uncertainties rather than altering order policies.