What is meant by "Safety Stock" in inventory management?

Safety stock refers to a level of extra inventory that is maintained to mitigate the risk of stockouts caused by uncertainties in supply and demand. It acts as a buffer to ensure that even if there are unexpected spikes in demand or delays in replenishment, the business can continue to meet customer needs without interruption. This is particularly important in inventory management as it helps maintain service levels and customer satisfaction, while also minimizing lost sales opportunities.

In contrast, inventory allocated for seasonal sales is specifically set aside to fulfill anticipated demand during peak times, which is more of a planned strategy. Items that are obsolete or expired, meanwhile, do not provide value in terms of meeting current customer demand. Products on backorder indicate that the demand has outstripped the available supply, which would not be effectively managed with safety stock. Thus, the definition of safety stock is most accurately captured by the concept of maintaining extra inventory to prevent stockouts.