What Is Safety Stock and Why Is It So Important?
Safety stock, also called buffer stock, is the stock you order additionally. Almost all companies will set up safety stocks to cope with emergencies. This kind of inventory helps reduce the risk of out-of-stock product sales, loss of sales, or the possibility of customer dissatisfaction.
The main purpose of safety stock is to ensure that there is enough stock for sale. Why is it necessary? Because in most industries, companies cannot determine 100% of the sales volume of a product in a given time.
Seasonal fluctuations in demand for products may require companies to hold safety stocks at certain times throughout the business cycle. Enterprises need to predict the supply speed, delivery frequency, and delivery time based on the supplier’s distance.
Intensified competition in online stores has caused businesses to pay more attention to changes in product demand. Because of the shortage of goods, your failure to deliver the goods as promised will drive customers to turn their attention to other stores. Nowadays, customers hate waiting. When they cancel an order, you will face the weakening of customer trust and competitors’ blow.
Although a certain degree of safety is needed, it must be emphasized that safety stocks come at a price. The greater the amount of safety stock held, the higher the cost of the company. These costs include warehouse rent, warehouse staff wages, security costs, and the cost of expired or obsolete inventory.
How Does Safety Stock Affect Inventory Management?
A strategic supply chain management system is vital to the success of product marketing and operations. This is related to product inventory management. Correct management measures are conducive to improving customer satisfaction, reducing operating costs, and bringing a stable cash flow to your business.
Inventory management is a reliable long-term investment. Effective safety inventory management can ensure your supply chain’s normal operation and maintain your company’s reputation without disappointing your customers.