Buffer inventory, also known as safety stock, is excess inventory a company keeps on hand to ensure consistency of availability for consumers. It can provide stability during unexpected surges in demand, but drawbacks include the cost of storing extra goods and the risk of investing in inventory that may never be sold.
Buffer inventory is a portion of a company’s inventory that is sometimes referred to as safety stock. These terms can be used to refer to any commodity a company has on site or along its route that exceeds its current needs. Safety stocks can be beneficial because they can help ensure consistency of availability for consumers, but there may be drawbacks, such as an inability to sell the extra supplies.
To understand what safety stock is and the role it can play, it’s best to first understand what inventory is. Businesses that sell merchandise generally keep a set quantity of those products on hand for immediate delivery to customers. For example, a shoe store might have a certain number of shoes on the site so that a person interested in making a purchase doesn’t have to wait to get the items they want. These securities are known as inventory.
The amount of inventory a business handles is normally based on its need. If a shoe store typically sells 600 pairs of shoes in July, it likely would have about that number of shoes in stock during that month. There are some instances, however, where a business may decide to order more merchandise than it needs. This is considered a buffer inventory and can serve as a big plus.
One benefit of buffer inventory is that it can provide stability. This is possible because companies can immediately and effectively manage unexpected surges in demand. This reduces the risk that a business will miss out on opportunities to serve consumers who may go elsewhere if their demands are not immediately met.
Additionally, there are many circumstances that can cause delays when businesses attempt to replenish their inventory. Examples include severe weather conditions, supply shortages, and supplier disputes. Maintaining buffer inventory allows a business to reduce the likelihood of experiencing disruptions of desired goods. Some companies may develop a buffer reserve because they are taking advantage of special offers from suppliers, such as sales, rebates or bulk discounts.
However, there may be some drawbacks associated with buffer inventory. One of them is the task of storing extra goods. If a business does not have adequate space, the additional merchandise may be stored in a way other than the recommended way, or a company could incur storage fees. Another disadvantage is that a company may invest in buffer inventory, but demand for all products may never materialize. For this reason, special attention should be paid to the amount of buffer stock a company acquires.
Protect your devices with Threat Protection by NordVPN
