Safety Stock
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Safety stock is inventory held to protect against uncertainty in supply—delivery delays, quality rejections, or supplier disruptions.
Definition
Safety stock is inventory held as insurance against supply variability—late deliveries, quality problems, or unexpected supply disruptions. While working stock (cycle stock) covers normal demand during normal replenishment time, safety stock covers the unexpected: the truck that's late, the batch that fails inspection, the supplier that has a fire. Safety stock quantity is calculated based on supply variability and acceptable stock-out risk. Lean systems minimize safety stock by improving supplier reliability and quality, but some safety stock is usually necessary for external supply sources.
Examples
A plant receives parts from a supplier with 95% on-time delivery. The 5% late deliveries average 2 days. Safety stock is set at 2 days of usage to cover typical delays. If supplier reliability improves to 99% on-time, safety stock can be reduced to 1 day.
Key Points
- Distinct from buffer stock (which protects against internal process variability)
- Sized based on supply variability and acceptable stock-out risk
- Should be systematically reduced as supply reliability improves
- Not free insurance—carries real costs that should drive improvement
Common Misconceptions
Safety stock means we can ignore supplier problems. Safety stock buys time, not permanent protection. Chronic supplier issues consume safety stock and require permanent solutions.
More safety stock is safer. Excess safety stock ties up capital, hides problems, and may obsolete before use. The right level balances protection against carrying cost.