ECONOMICS

Detailed explanation-1: -Safety inventory is carried to satisfy demand subject to unpredictable demand fluctuations and to reduce product shortages. This type of inventory cushion is also called safety stock or buffer inventory. Safety stock can help the supply chain manager improve product availability in the presence of uncertainty.

Detailed explanation-2: -Safety stock determinations are not intended to eliminate all stockouts-just the majority of them. For example, when designing for a 95 percent service level, expect that 50 percent of the time, not all cycle stock will be depleted and safety stock will not be needed.

Detailed explanation-3: -Safety stock is held when uncertainty exists in demand, supply, or manufacturing yield, and serves as an insurance against stockouts. Safety stock is an additional quantity of an item held in the inventory to reduce the risk that the item will be out of stock.

Detailed explanation-4: -Quality Reduction & Product Degradation. Storing excess stock can lead to quality problems such as degradation and potential obsolescence.