What is safety stock?

• A. Extra inventory held to cover variability in demand or supply
• B. A special storage facility
• C. A quality assurance standard
• D. A stock indexing system

Answer: (A)

Safety stock is extra inventory kept to cover variability in either demand or supply. It acts as a buffer so you don’t run out of stock if demand spikes or if deliveries are delayed. This is different from just the regular inventory you expect to use in a normal period.

Think of it as a cushion tied to how unpredictable things are. If demand is unstable or supplier lead times are long or inconsistent, you hold more safety stock to maintain service levels and avoid backorders. The amount you keep depends on how much uncertainty there is and how critical it is to meet customer needs; in a highly volatile environment, safety stock is larger.

For a practical sense, you would estimate the amount of product you expect to consume during the lead time (the time from placing an order to receiving it) and then add extra to account for variability. This extra is the safety stock. It’s not a storage facility, a quality standard, or an indexing system—it's specifically a buffer to protect against stockouts.