January 10th, 2018
What is Safety Stock? When do we need to keep it? How does it relate to reorder point?
Safety stock is the surplus inventory maintained to avoid stock-outs in the event lead times and demand differs from the forecasted ones. Safety stock should thus be kept in periods of uncertainty when the time between placing an order and delivery is not known or the demand for the product increases arbitrarily. By keeping safety stock, the reorder point is increased by the units of such safety stock.