ECONOMICS

Detailed explanation-1: -A buffer is a margin for error around an estimate. In cases where there is significant uncertainty or the cost of being wrong is significant, including a buffer is wise. The buffer helps protect the project against the impact of the uncertainty.

Detailed explanation-2: -In theory, the logic of MRP would preclude the use of buffering. In reality, uncertainty exists in the production system in various stages. Buffering is a primary means of protecting against degradation of performance due to the uncertainty.

Detailed explanation-3: -The buffering function of inventory involves protecting the business or supply chain against three types of uncertainty: Uncertainty of future demand. This type of uncertainty results from the fact that demand usually fluctuates from period to period; causing a probability that demand may be more than the forecast.

Detailed explanation-4: -The result of demand uncertainty is increased cost, most commonly in the form of excess inventory, excess capacity in production, or the use of faster and more expensive transportation of goods.