Buffer stock
What is buffer stock in supply chain management?
Buffer stock, also known as inventory buffer or stock buffer, refers to the extra inventory held by a company to mitigate the risk of stockouts caused by uncertainties in supply and demand. It acts as a cushion against fluctuations in customer demand, supply chain disruptions, and variations in lead times.
How to calculate buffer stock?
Calculating buffer stock involves considering factors such as lead time variability, demand variability, and service level targets. A common approach is to use statistical methods like safety stock formulas or inventory optimization tools. The goal is to maintain enough buffer stock to prevent stockouts without unnecessarily tying up excess capital in inventory.
Benefits of buffer stock
Buffer stock offers several advantages in supply chain management:
- Risk mitigation: Reduces the risk of stockouts and ensures continuity of supply
- Improved customer service: Ensures products are available when customers demand them, enhancing customer satisfaction
- Operational flexibility: Provides flexibility to manage demand surges, supply delays, and other disruptions.
- Smooth production: Helps to maintain stable production levels by ensuring raw materials or components are readily available.
Buffer stock vs. safety stock
Buffer stock and safety stock are often used interchangeably, but they can have nuanced differences based on context. While both terms refer to holding extra inventory as a precautionary measure, buffer stock specifically focuses on managing variability in demand while safety stock, on the other hand, is more focused on protecting against disruptions and variability in supply.