Which statement best defines safety stock?

Which statement best defines safety stock?

• A. The minimum stock level required to operate without stockouts.
• B. The total value of on-hand inventory.
• C. The average inventory level over a period.
• D. Extra inventory held to protect against demand or supply variability.

Answer: (D)

Safety stock is extra inventory kept beyond what you expect to use in normal operations to guard against variability in demand or supplier lead times. Its purpose is to prevent stockouts when actual demand turns out higher than forecast or when replenishment is delayed, acting as a cushion until the next order arrives. It’s not the minimum stock needed to operate, nor the total on-hand value or the average inventory over a period. The idea is to maintain a buffer so service levels stay high even if things don’t go exactly as planned.

Safety stock is extra inventory kept beyond what you expect to use in normal operations to guard against variability in demand or supplier lead times. Its purpose is to prevent stockouts when actual demand turns out higher than forecast or when replenishment is delayed, acting as a cushion until the next order arrives. It’s not the minimum stock needed to operate, nor the total on-hand value or the average inventory over a period. The idea is to maintain a buffer so service levels stay high even if things don’t go exactly as planned.