Buffer stock is inventory held in reserve throughout the value stream that serves to mitigate downward supply fluctuations (that might result from lead time delays, for example), or, upward demand fluctuations (that could exist for a myriad of market drivers.). Also known as strategic stock or safety stock. It’s fundamentally in place to manage uncertainty and / or unpredictability. At its core, such stock is embedded to reduce the potential for, and the severity of, stock-out conditions.
Buffer stock should be specified mindful of actual supply and demand performance with respect to commodities that comprise the product. How much buffer stock to carry should be well-considered; there are benefits and concerns.
On one hand, should exceptional environmental situations occur where stock delivery is persistently constrained, being able to perform with buffer stock on-hand promotes enterprise revenue stability. Conversely, being unable to execute and deliver product due to inadequate supply on-hand can present notable opportunity costs and be devastating to enterprise results.
Still, buffer surely contributes to inventory costs and could have shelf life or other constraints. Moreover, carrying excess buffer stock can enable an enterprise to delay solving its thorniest problems with respect to production optimization and storage costs.« Back to Glossary Index