What is defined as safety stock in inventory management?

Safety stock is defined as excess inventory that is held to mitigate the risk of stockouts, which can occur due to demand fluctuations or supply chain disruptions. The purpose of safety stock is to ensure that there is enough product on hand to fulfill customer orders even when there are unexpected increases in demand or delays in supply. This helps businesses maintain service levels and customer satisfaction by preventing situations where they cannot meet demand due to insufficient inventory.

Holding safety stock is a common practice in inventory management, as it acts as a buffer against uncertainties in supply and demand. It allows companies to operate with greater confidence, knowing they have a buffer in place to address unexpected changes in the market or supply chain.

In contrast, the other options do not accurately represent the concept of safety stock. Inventory set aside for special orders pertains to specific customer needs rather than general stockout prevention. Obsolete or damaged inventory does not serve any purpose in mitigating stockouts and can actually represent a liability for businesses. Lastly, minimal stock kept to reduce waste typically refers to just-in-time inventory practices, which aim to lower inventory carrying costs rather than to provide a buffer against stockouts. Therefore, the definition that best matches safety stock is the one related to excess inventory aimed at reducing stockout risks.