Safety Stock Law and Legal Definition

Safety stock is a term used in business inventory management to describe a level of extra stock that is maintained below cycle stock or the stock used regularly to buffer against shortfall in stock. Safety stock is kept to counter uncertainties in supply and demand. Safety stock is also called buffer stock. Therefore, safety stock may be defined as extra units of inventory carried as protection against possibility of becoming out of stock of goods. By having an adequate amount of safety stock on hand, a company can meet unforeseeable sales demandsich they could not foresee.

The amount of safety stock an organization keeps on hand can affect their business. Too much safety stock can result in high holding costs of inventory and spoiling of goods, thereby causing loss. Perishable goods such as food, drink, and such other items could spoil and go to waste if held as safety stock for too long. But, too little safety stock can result in loss of sales as well.