What is the function of safety stock in inventory management?

Safety stock serves as a cushion in inventory management, designed specifically to mitigate the risks associated with demand fluctuations. By maintaining a buffer of additional inventory, companies can better respond to unexpected increases in customer demand or delays in supply. This strategy helps ensure that they have sufficient products on hand to satisfy orders, thus preventing stockouts and maintaining customer satisfaction.

The correct choice highlights the proactive approach that businesses take to safeguard against uncertainties in sales and supply chain operations. This is particularly important in industries where demand can be unpredictable or influenced by seasonal trends, promotional events, or other external factors.

While maximizing profits, reducing lead times, and minimizing competitor risks are all valuable objectives in inventory management, they are not the primary function of safety stock. Safety stock specifically addresses the variability in demand and supply, making it critical for effective inventory strategy.