The Procurement Glossary » Safety Stock

Safety Stock

Inventory & Logistics

Definition

Extra inventory held as a buffer against variability in demand or supply, to reduce the risk of stockouts.

Explanation

Safety stock absorbs surprises — a demand spike or a late delivery. Its size trades service level against carrying cost, and is calculated from demand and lead-time variability plus the target service level.

Example

Given variable demand and a two-week lead time, the item carries three weeks of safety stock.

Related terms

• Reorder Point (ROP) — The inventory level at which a replenishment order should be placed to avoid running out before it arrives.
• Stockout — A situation where an item is unavailable because inventory has run out, disrupting operations or sales.
• Lead Time — The elapsed time between placing an order and receiving the goods.
• Fill Rate — The percentage of ordered quantity a supplier delivers from stock without shortfall or backorder.

Frequently Asked Questions

What is Safety Stock?

Extra inventory held as a buffer against variability in demand or supply, to reduce the risk of stockouts. Safety stock absorbs surprises — a demand spike or a late delivery. Its size trades service level against carrying cost, and is calculated from demand and lead-time variability plus the target service level.

Can you give an example of Safety Stock?

Given variable demand and a two-week lead time, the item carries three weeks of safety stock.

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