What is the difference between safety stock and buffer stock

Likewise, any geographic remoteness or the distance of a business from its suppliers could reduce the frequency of deliveries or necessitate longer lead times. The principal goal of safety stock is to ensure that there is sufficient product available to the customer. The best that a business can do is to make forecasts that are as accurate as possible, but ultimately these are just predictions. It is also impossible to fully guarantee an expected level of supply, as suppliers have their own problems in meeting demand requirements, and thus may not always deliver what is needed on time.

Due to this uncertainty, having an amount of inventory in reserve can allow a business to weather any difficulties with demand or supply, and keep the customer satisfied.

Despite the clear need for some degree of safety, it must be emphasised that safety stock comes at a cost. There are many costs to holding inventory, and the more safety stock a business has, the larger these costs will be.

Some examples of these costs are the cost of renting storage space, warehouse staff wages, security costs, and the costs of stock becoming dated or obsolete. This is not a one-off outlay, but something that a business must pay every year.

Because of this high cost of holding inventory, a business faces a trade-off between safety against demand and supply changes, and minimising inventory costs. Faced with this balancing of cost and safety, there are several points a business should consider in determining safety stock levels, regardless of the method used to do this. Firstly, customer satisfaction, while hard to quantify, has a large impact on the success of a business.

In the modern world, one unhappy customer for a retail business can mean a large reduction in potential customers, especially if that customer spreads their dissatisfaction through social media. In non-retail businesses that only supply a few key clients, relationships are everything, and one or two instances of failure to supply could cost a business a client that may make up a large fraction of their revenue.

Second, different industries will face different levels of fluctuation in both demand and supply, and any method of determining safety stock should reflect these differences: the greater the potential fluctuation, the greater the level of safety stock should be. Finally, businesses should be aware that specialised inventory software, which can track and calculate safety stock levels, is now available at a fraction of the cost that it used to be.

Fewer Out-Of-Stock Items By accurate inventory forecasting, your business will have enough products on hand and lowers the risk of a stockout. More Systematic Production Cycle Managing your products across the entire supply chain gets a lot better with inventory forecasting. What is Buffer Stock? What is a good buffer stock level? Methods for Calculating Buffer Stock Buffer stock is more effective if you know the amount of stock you need to keep so that you can prevent higher holding costs from having too much stock on hand and on the other side avoid loss of sales from too little stock.

Fixed Buffer Stock Fixed buffer stock is a method of calculating buffer stock used by an inventory manager without using a particular formula. Time-Based Calculation Buffer stock levels in a time-based calculation are calculated over a specific time period based on a data-driven prediction for the product.

The General Formula The general formula is the most simple and popular method for calculating buffer stock. Lead Time As a general rule of thumb for most private label sellers, 30 days of buffer at Amazon, at least for your top sellers, is a good buffer stock.

Advantages of Having Buffer Stock The main reason for utilizing buffer stock in your business is to avoid out-of-stock scenarios. What is Safety Stock? Key Parameters for a Safety Stock Some of the key parameters for setting your safety stock quantities are:.

Having accurate predictions concerning demand and supply, which can help estimate volumes. Knowing the replenishment frequency required for transferring stock from your 3PL. Factoring supplier lead times for production and shipping.

Product perishability in terms of the shelf lives of the goods. Seasonal changes also need to be considered by keeping safety stock. What is Anticipation Inventory? Advantages and Risks Related to Anticipation Inventory The main advantage of anticipation inventory is that it allows sellers to serve the consumers consistently based on seasonal buying patterns.

There are major risks that go with using anticipation inventory, including:. Wrong predictions lead to under or overestimations of inventory with a consequence of possible loss of sales or a longer time for the company to sell through it. Anticipation inventory gives more carrying costs in which the company will have to spend more money on additional storage fees.

If the inventory is for a particular season or sales holiday, such as Memorial Day, it at times needs to be sold with a discount or at a lower price. They are: 1. Removing sales spikes. Removing stockouts. Applying Buffer Stock Buffer stock makes all the difference in your inventory management. Get Fresh Updates On your job applications, and stay connected.

Download Now. Start networking and exchanging professional insights Register now or log in to join your professional community. Follow What is the difference between safety stock and buffer stock?

Upvote 1 Views Followers 7. Write an Answer Register now or log in to answer. Upvote 3 Downvote 0 Reply 0. B2C businesses. Will reading this post help you make informed decisions about the risks and rewards associated with holding extra stock?

According to our Magic 8-Ball, signs point to yes. Safety stock inventory is extra product kept on hand to account for unexpected delays from suppliers. Safety stock is always held in warehousing when there is uncertainty in supply.

It's an effective insurance policy against stockouts, AKA running out of raw materials inventory , finished goods inventory , or packaging. The purpose of safety stock is to have enough inventory to account for unanticipated shortages.

Gotta keep that work in process inventory pumping away and your order management specialist busy. Failing to convert them is inexcusable lost revenue and a poor reflection on your business.

This is important even for businesses who participate in a consignment inventory model or other non-traditional partnerships. Not only do stockouts represent direct sales loss, they erode brand reputation and customer loyalty. It also affects you inventory carrying cost , so it's important to control. There is some confusion around cycle inventory vs. Cycle stock and safety stock are defined against each other. Cycle stock is the amount of inventory a business cycles through to satisfy regular inventory supply or demand.

Safety stock, on the other hand, is the amount of inventory needed to avoid stockouts in the event of unanticipated supply. That means cycle stock inventory is the amount of inventory on-hand minus safety and buffer stock.