A quantity of inventory that provides protection against lost sales caused by unfulfilled demands from customers is called safety stock.
Safety stock refers to a quantity of inventory where the extra amount of goods are stored in a warehouse in order to prevent out-of-stock situations. Thus, this way the customer demands are fulfilled, as they get the products when they desire, without facing any out-of-stock problem.
The safety stock is the stock level which limits stock shortages due to unforeseen events. Thus, one needs a safety stock to cover themselves against two hazards or uncertainties- demand and lead time.
Hence, the safety stock refers to the back-up inventory.
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