Safety Stock
Safety stock is the extra inventory kept on hand to protect against uncertainty — spikes in demand, or delays in supply — so that a stock-out does not occur while waiting for replenishment. It is the buffer that sits below the reorder point.
Too little safety stock risks lost sales and expedites; too much ties up cash and warehouse space. Setting it well means balancing the cost of holding stock against the target service level (the acceptable risk of running out).
Safety stock is where the trade-off between service and working capital is made explicit. Set it with data — demand and lead-time variability, and a chosen service level — and you protect availability at the lowest necessary cost, instead of guessing with a round number.
How much safety stock should I hold?
Enough to hit your target service level given your demand and lead-time variability — no more. AI demand forecasting sharpens this by predicting variability rather than assuming it.