What is the purpose of safety stock?

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Prepare for the FBLA Introduction to Supply Chain Management Test with flashcards and multiple-choice questions. Each question includes hints and detailed explanations. Maximize your success rate!

Multiple Choice

What is the purpose of safety stock?

Explanation:
Safety stock acts as a buffer to protect service levels when outcomes aren’t exactly as planned. Its purpose is to prevent stockouts caused by variability in demand or by supply interruptions, such as late shipments or unexpected spikes in orders. By having this extra inventory, a company can continue fulfilling customer needs even when demand is higher than forecast or lead times stretch. It isn’t obsolete, and it isn’t intended to simply raise storage costs or to hedge only against price increases; those are not the reasons for keeping safety stock.

Safety stock acts as a buffer to protect service levels when outcomes aren’t exactly as planned. Its purpose is to prevent stockouts caused by variability in demand or by supply interruptions, such as late shipments or unexpected spikes in orders. By having this extra inventory, a company can continue fulfilling customer needs even when demand is higher than forecast or lead times stretch. It isn’t obsolete, and it isn’t intended to simply raise storage costs or to hedge only against price increases; those are not the reasons for keeping safety stock.

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