Which statement about safety stock is correct?

• A. Extra inventory kept to prevent stockouts due to demand variability or supply interruptions.
• B. Safety stock is obsolete in modern SCM.
• C. Extra inventory kept to increase storage costs.
• D. Extra inventory used to hedge against price increases only.

Answer: (A)

Safety stock acts as a buffer against uncertainty in demand and supply so you don’t run out of product. The idea is to keep a little extra inventory to cover situations where demand is higher than expected or deliveries are delayed, helping maintain service levels and customer satisfaction. This aligns with the statement that describes extra inventory kept to prevent stockouts due to demand variability or supply interruptions.

In practice, how much safety stock to hold depends on how much variability there is in demand and lead times, and how much risk of stockouts you’re willing to accept. If demand or lead time is unpredictable, you’ll typically carry more safety stock; if everything is stable, you can keep less. While some trends aim to reduce safety stock through better forecasting or more reliable suppliers, it isn’t considered obsolete—uncertainty still exists in real-world supply chains.

The other ideas miss the purpose: safety stock isn’t about increasing storage costs, and it isn’t primarily for hedging against price increases. Those are separate considerations in inventory and procurement strategy.